In Revenue Ruling 2004-88 the IRS held that if a single partner of a partnership is a disregarded entity (such as a single member LLC or a grantor trust), that partnership cannot qualify for an exemption from the TEFRA consolidated partnership audit rules under the provisions of IRC §6231(a)(1)(B)(i). In the case of Seaview Trading, LLC, et al v. Commissioner, (CA9 2017), Case No. 15-71330 the Ninth Circuit Court of Appeals agreed with the IRS’s view expressed in that Revenue Ruling.
Robert Kotick and his father Charles Kotick formed Seaview Trading, LLC, which was taxed as a partnership. Each of the Koticks held their interest in Seaview through a single member LLC that was treated as a disregarded entity.
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