Partnerships, Disregarded Entities and Changing Horses Mid-Stream

Partnerships, Disregarded Entities and Changing Horses Mid-Stream

In a recent decision from the Tax Court, there was rejected an effort by a self-described partnership to have itself recharacterized as a disregarded entity, that recharacterization sought as a means of avoiding a liability for failure to file certain partnership returns on a timely basis. The Tax Court rejected this effort. See Argosy Technologies, LLC v. Commissioner, No. 29856-14 L, T.C. Memo 2018-35 (March 22, 2018).

When the IRS sought to impose certain ally penalties on Argosy Technologies, LLC for failure to timely file partnership returns (code § 6031), it was asserted that in fact the LLC was a disregarded entity not subject to the partnership return rules. The Tax Court, like the Appeals officer below, rejected that suggestion. In this case, the LLC had filed partnership tax returns and had made an election under code § 6231(a)(1)(e)(ii) to be covered under “TEFRA.” As such:

Since petitioner represented itself as a partnership on its tax returns, it may not argue that it is another entity and disclaim its validity.

The opinion recited that no evidence of an election pursuant to code section 761(f) existed.

 

[FYI - While, by definition, sole proprietorships may not have more than one owner, a married couple that file a joint return and jointly own and operate the business may elect to have that business treated as a sole proprietorship by making an election under section 761(f).]