In IRS Information Letter 2021-0029[1] the agency addresses an issue that CPAs employed as a controller in small, closely held businesses with various related businesses run into. If they are asked to prepare a number of returns for individuals and other related entities that aren’t their employer, at what point does the controller become a paid preparer with regard to some or all of those returns.

Final regulations have been issued by the IRS (TD 9785) revising regulations under IRC §7701 for the definitions related to marriage as they apply to the Internal Revenue Code.  These regulations take into account the Supreme Court’s holdings on same sex marriage found in the cases of Obergefell v. Hodges (135 S. Ct. 2584 (2015)) and  Windsor v. United States (133 S. Ct. 2675 (2013)).

The final regulations generally reflect the revisions found in the proposed regulations (REG-148998-13) issued in October 2015.  Rather than revised the language throughout the regulations to remove the terms “husband” and “wife” the IRS decided to issue a broad clarifying definition in Reg. §301.7701-18.

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Under Reg. §301.7701-3(c)(1)(iv) an LLC that makes an election to change its classification may not, without IRS approval, change its classification again within 60 months of that change of classification.  However, this rule does not apply to the entity’s initial classification.  In that case, the organization could change its classification to an acceptable alternative at any time without IRS approval, even if that was less than 60 months after the initial classification.

In PLR 201622020 the situation involved an LLC that was formed but which sat dormant from its formation until it finally acquired assets at a later date.  This LLC now wished to be taxed as an organization taxed as a corporation, but asked the IRS to allow it to treat this election as an initial election and not a change of classification that would trigger the 60 month waiting period before a change of classification could be undertaken without IRS approval.

If a partnership owns an LLC it treats as a disregarded entity under the check the box rules, may partners of the partnership be treated as employees of the disregarded entity, receiving a W-2 and obtaining certain tax beneficial fringe benefits open to employee but not partners?  The IRS says the answer has always been no, but since some read the existing regulations otherwise the agency has issued Temporary Regulation §301.7701-2T(e)(8)(i) (TD 9766) and an identical proposed regulation (REG-114307-15).

The “check the box” provisions found in Reg. §301.7701-2 were created to deal with state law entities that had no direct equivalent under federal law (with the prime example being limited liability companies (LLCs)).  Under those rules, the taxpayer elects to treat the entity “as if” it was an entity the IRC has a treatment for, picking from a list that depends on the number of owners.  

The question of whether an arrangement was a partnership or was a commission arrangement was the issue before the United States Court for the Southern District of Texas in the case of United States v. Stewart, et al, 116 AFTR 2d ¶ 2015-5159.