Business Owners Liable for Federal Employment Taxes

Federal employment taxesMost small business owners are so-called “intermediate” entities. Two examples of an “intermediate” entity are S- corporations and Limited Liability Companies (LLCs).

In general, the formation of an S-corporation or LLC in Florida does not provide liability protection to owners of the company for the payment of taxes. This rule has been clearly defined in the case of Littriello v. United States, 484 F.3d 372 (6th Cir. 2007).

In this case, the applicant Littriello challenged the validity of the “check-the-box” (check box) regulation of the Treasury Department, 26 CFR § § 301.7701-1 at 301.7701-3. Littriello had incorporated several separate LLCs and was the sole owner of each LLC. The operations of the LLCs had amounted to unpaid federal employment taxes totaling $ 1,077,000. As a result, the Internal Revenue Service (IRS) brought charges against Littriello, personally, for these unpaid taxes.

In their seven pages of transcript, the Court examined the history of the “check-the –box” regulation and the difference between the intermediate taxation and corporate taxation. After a thorough analysis, the Court concluded that the IRS may require unpaid employment taxes to be paid by the sole owner of an LLC.

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