Disregarded Entities and Excise Taxes, 46903-46904 [E9-21987]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 74, Number 176 (Monday, September 14, 2009)]
[Rules and Regulations]
[Pages 46903-46904]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-21987]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9462]
RIN 1545-BH91


Disregarded Entities and Excise Taxes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
clarifying that a single-owner eligible entity that is disregarded as 
an entity separate from its owner for any purpose, but regarded as a 
separate entity for certain excise tax purposes, is treated as a 
corporation for tax administration purposes related to those excise 
taxes. These regulations also make conforming changes to the tax 
liability rule for disregarded entities and the treatment of entity 
rule for disregarded entities with respect to employment taxes. These 
regulations affect disregarded entities in general and, in particular, 
disregarded entities that pay or pay over certain federal excise taxes 
or that are required to be registered by the IRS. The text of these 
temporary regulations serves as the text of proposed regulations (REG-
116614-08) published in the Proposed Rules section in this issue of the 
Federal Register.

DATES: Effective Date: These regulations are effective on September 14, 
2009.
    Applicability Date: For dates of applicability, see Sec.  301.7701-
2T(e)(2), (e)(5), and (e)(6).

FOR FURTHER INFORMATION CONTACT: Michael H. Beker, (202) 622-3070 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    This document contains amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under section 7701 of the 
Internal Revenue Code (Code).
    Under existing Sec.  301.7701-2(c)(2)(iv), a single-owner eligible 
entity that is disregarded as an entity separate from its owner for 
Federal tax purposes is treated as a separate entity for purposes of 
employment taxes imposed under Subtitle C of the Code and related 
reporting requirements. The regulations treat these disregarded 
eligible entities as corporations for purposes of employment taxes 
imposed under Subtitle C of the Code and related reporting 
requirements.
    Under existing Sec.  301.7701-2(c)(2)(v), a single-owner eligible 
entity that is disregarded as an entity separate from its owner for 
Federal tax purposes is treated as a separate entity for purposes of 
certain excise taxes reported on Form 720, ``Quarterly Federal Excise 
Tax Return;'' Form 730, ``Monthly Tax Return for Wagers;'' Form 2290, 
``Heavy Highway Vehicle Use Tax Return;'' and Form 11-C, ``Occupation 
Tax and Registration Return for Wagering;'' excise tax refunds or 
payments claimed on Form 8849, ``Claim for Refund of Excise Taxes;'' 
and excise tax registrations on Form 637, ``Application for 
Registration (For Certain Excise Tax Activities).'' Although liability 
for excise taxes is not dependent upon an entity's classification, an 
entity's classification is relevant for certain tax administration 
purposes, such as determining the proper location for filing a notice 
of federal tax lien and the place for hand-carrying a return under 
section 6091. Therefore, these temporary regulations clarify that these 
disregarded eligible entities are treated as corporations for tax 
administration purposes.
    These temporary regulations also make conforming changes to the tax 
liability rule for disregarded entities in Sec.  301.7701-2(c)(2)(iii) 
and the treatment of entity rule for disregarded entities with respect 
to employment taxes in Sec.  301.7701-2(c)(2)(iv)(B).

Effective/Applicability Date

    These regulations apply on and after September 14, 2009.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
please refer to the Special Analyses section of the preamble to the 
cross-reference notice of proposed rulemaking published elsewhere in 
this issue of the Federal Register. Pursuant to section 7805(f) of the 
Code, this regulation has been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Drafting Information

    The principal author of these regulations is Michael H. Beker, 
Office of the Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and the Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

[[Page 46904]]

Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 2. Section 301.7701-2 is amended by:
0
1. Revising paragraphs (c)(2)(iii) and (c)(2)(iv)(B).
0
2. Redesignating paragraph (c)(2)(v)(B) as paragraph (c)(2)(v)(C) and 
added new paragraph (c)(2)(v)(B).
0
3. In newly-designated paragraph (c)(2)(v)(C), Example (iv) is added.
0
4. Revising paragraph (e)(2).
    The additions and revisions read as follows:


Sec.  301.7701-2  Business entities; definitions.

* * * * *
    (c) * * *
    (2) * * *
    (iii) [Reserved]. For further guidance, see Sec.  301.7701-
2T(c)(2)(iii).
    (iv) * * *
    (B) [Reserved]. For further guidance, see Sec.  301.7701-
2T(c)(2)(iv)(B).
* * * * *
    (v) * * *
    (B) [Reserved]. For further guidance, see Sec.  301.7701-
2T(c)(2)(v)(B).
    (C) * * *
    (iv) [Reserved]. For further guidance, see Sec.  301.7701-
2T(c)(2)(v)(C) Example (iv).
* * * * *
    (e) * * *
    (2) [Reserved]. For further guidance, see Sec.  301.7701-2T(e)(2).
* * * * *

0
Par. 3. Section 301.7701-2T is added to read as follows:


Sec.  301.7701-2T  Business entities; definitions (temporary).

    (a) through (c)(2)(ii) [Reserved]. For further guidance, see Sec.  
301.7701-2(a) through (c)(2)(ii).
    (iii) Tax liabilities of certain disregarded entities--(A) In 
general. An entity that is disregarded as separate from its owner for 
any purpose under Sec.  301.7701-2 is treated as an entity separate 
from its owner for purposes of--
    (1) Federal tax liabilities of the entity with respect to any 
taxable period for which the entity was not disregarded;
    (2) Federal tax liabilities of any other entity for which the 
entity is liable; and
    (3) Refunds or credits of Federal tax.
    (B) Examples. The following examples illustrate the application of 
paragraph (c)(2)(iii)(A) of this section:

    Example 1. In 2006, X, a domestic corporation that reports its 
taxes on a calendar year basis, merges into Z, a domestic LLC wholly 
owned by Y that is disregarded as an entity separate from Y, in a 
state law merger. X was not a member of a consolidated group at any 
time during its taxable year ending in December 2005. Under the 
applicable state law, Z is the successor to X and is liable for all 
of X's debts. In 2009, the Internal Revenue Service (IRS) seeks to 
extend the period of limitations on assessment for X's 2005 taxable 
year. Because Z is the successor to X and is liable for X's 2005 
taxes that remain unpaid, Z is the proper party to sign the consent 
to extend the period of limitations.
    Example 2. The facts are the same as in Example 1, except that 
in 2007, the IRS determines that X miscalculated and underreported 
its income tax liability for 2005. Because Z is the successor to X 
and is liable for X's 2005 taxes that remain unpaid, the deficiency 
may be assessed against Z and, in the event that Z fails to pay the 
liability after notice and demand, a general tax lien will arise 
against all of Z's property and rights to property.

    (c)(2)(iv)(A) [Reserved]. For further guidance, see Sec.  301.7701-
2(c)(2)(iv)(A).
    (B) Treatment of entity. An entity that is disregarded as an entity 
separate from its owner for any purpose under Sec.  301.7701-2 is 
treated as a corporation with respect to taxes imposed under Subtitle 
C--Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 
23A, 24, and 25 of the Internal Revenue Code).
    (C) through (c)(2)(v)(A) [Reserved]. For further guidance, see 
Sec.  301.7701-2(c)(2)(iv)(C) through (c)(2)(v)(A).
    (B) Treatment of entity. An entity that is disregarded as an entity 
separate from its owner for any purpose under Sec.  301.7701-2 is 
treated as a corporation with respect to items described in Sec.  
301.7701-2(c)(2)(v)(A).
    (C) Example. (i) through (iii) [Reserved]. For further guidance, 
see Sec.  301.7701-2(c)(2)(v)(C) Example (i) through (iii).
    (iv) Assume the same facts as in Sec.  301.7701-2(c)(2)(v)(C) 
Example (i) and (ii). If LLCB does not pay the tax on its sale of coal 
under chapter 32 of the Internal Revenue Code, any notice of lien the 
Internal Revenue Service files will be filed as if LLCB were a 
corporation.
    (d) through (e)(1) [Reserved]. For further guidance, see Sec.  
301.7701-2(d) through (e)(1).
    (e)(2) Paragraph (c)(2)(iii) of this section applies on and after 
September 14, 2009. For rules that apply before September 14, 2009, see 
26 CFR part 301 revised as of April 1, 2009.
    (e)(3) through (e)(4) [Reserved]. For further guidance, see Sec.  
301.7701-2(e)(3) through (e)(4).
    (e)(5) Paragraph (c)(2)(iv)(B) of this section applies with respect 
to wages paid on or after September 14, 2009. For rules that apply 
before September 14, 2009, see 26 CFR part 301 revised as of April 1, 
2009.
    (e)(6) Paragraphs (c)(2)(v)(B) and (c)(2)(v)(C) Example (iv) of 
this section apply on and after September 14, 2009.
    (7) [Reserved]. For further guidance, see Sec.  301.7701-2(e)(7).
    (8) Expiration Date. The applicability of paragraphs (c)(2)(iii), 
(c)(2)(iv)(B), (c)(2)(v)(B), (c)(2)(v)(C) Example (iv), (e)(2), (e)(5) 
and (e)(6) of this section expires on or before September 11, 2012.

L.E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: August 31, 2009.
Michael F. Mundace,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-21987 Filed 9-11-09; 8:45 am]
BILLING CODE 4830-01-P