Filing an Entity Income Tax Return Does Not Constitute a Check-the-Box Election

A single member limited liability company (SMLLC) is treated by default under the check-the-box rules as a disregarded entity. If a Form 8832 is filed, the owner can elect to treat it as a corporation/association.

A single owner corporation was merged into an SMLLC owned by the same person. The surviving SMLLC filed Forms 1120 as a 'c' corporation thereafter. The IRS processed the Forms 1120. No Form 8832 election was ever made to treated the SMLLC as a corporation.

The IRS sought to impose employment tax liabilities on the member of the SMLLC, asserting he was responsible as sole member of a disregarded entity. The member argued that the IRS should respect the SMLLC as a corporation, and not treat it as a disregarded entity. The case ended up in Tax Court.

The member made three arguments. First, he argued that the merger of the two entities was a reorganization under Code §368(a)(1)(F) and thus the SMLLC should be treated as a corporation for Federal tax purposes. The Tax Court determined that absent the filing of a Form 8832, the SMLLC could not be a corporation, regardless of the reorganization status.

The member then argued that the filing of Forms 1120 for the first year after the merger constituted a valid election to be taxed as a corporation. The Tax Court held that a taxpayer can't make a check-the-box election by filing any form it wishes - it must use the Form 8832.

Lastly, the member argued that the doctrine of equitable estoppel prevented the IRS from contending that the SMLLC was not a corporation. The Tax Court described the four requirements of equitable estoppel as (1) a false representation or wrongful misleading silence; (2) the error must be in a statement of fact and not in an opinion or a statement of law; (3) the person claiming the benefits of estoppel must be ignorant of the true facts; and (4) he must be adversely affected by the acts or statements of the person against whom an estoppel is claimed. The Tax Court rejected the equitable estoppel claim since the IRS made no false statement to the member, and it did not agree that the IRS' lack of rejection of the Forms 1120 was a wrongful misleading silence. Further, court advised the the member knew the SMLLC had never filed a Form 8832 to elect to be treated as anything other than a disregarded entity.

Heber E. Costello, LLC, et al., TC Memo 2016-184