For IRS tax collections, the IRS is required to send various notices to the taxpayer before the IRS can typically begin collection levies, following the filing of a Notice of Federal Tax Lien, and in many other situations.
However, the question may arise on how the IRS should addresses official tax notices to businesses run as sole proprietors or single member LLCs. Does the IRS send the tax notice to the name of the individual or to the name of the sole proprietorship or the single member LLC?
The issue was recently addressed by the Tax Court in BM Construction v. Commissioner.[1] The Tax Court was faced with a Notice of Determination, which is the notice sent by the IRS Independent Office of Appeals after determining a tax appeal. The Notice was sent to the business name of a sole proprietorship rather than to the name of the individual taxpayer who owned the business. The Notice of Determination starts the time running for the taxpayer to appeal the determinant of the Appeals Officer to Tax Court. If the taxpayer does not file the appeal within 30 days from the date on the letter, the taxpayer loses its right to appeal the matter to Tax Court.
The Tax Court ruled that a notice sent in the name of the sole proprietorship was valid because “[a] sole proprietorship is generally disregarded as a separate entity from its owner.”[2] The Tax Court came to this ruling by noting that single member LLCs are considered disregarded entities under tax law and that notice sent to a single member LLC has been held as sufficient notice for the member of the LLC, provided that the member was adequately notified of its liabilities and was not prejudiced by the LLC use.[3]
Accordingly, it appears that the IRS may send notices in the name of a single member LLC or a sole proprietorship rather than in the name of the individual taxpayer, at least for cases involving a Notice of Determination.
Practice point: If the name on the IRS notice does not match the name of the taxpayer, the taxpayer should carefully consider whether the taxpayer actually received legal notice, whether the taxpayer was prejudiced by the use of a different name, and what the Internal Revenue Code and regulations require for correct, legal notice.
About the author: Jared M. Le Fevre is a tax attorney and partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions. what effect the notice may have on taxpayer rights.
[1] TC Memo 2021-013.
[2] Id. at 4.
[3] Id. at 3