## Facts

- Frank A. Littriello was the sole owner of several Kentucky limited liability companies (LLCs).
- The LLCs accrued unpaid federal employment taxes totaling about $1,077,000.
- Littriello did not elect to have the LLCs treated as corporations under the Treasury’s entity-classification (“check-the-box”) regulations.
- Under the default rules for single-member LLCs without a corporate election, the LLCs were treated as “disregarded entities” for federal tax purposes, meaning their activities and liabilities were attributed to Littriello as a sole proprietor.
- After the liabilities remained unpaid, the IRS issued determinations, filed tax liens, and notified Littriello of its intent to levy on his property.
- Littriello sought judicial review in federal district court, arguing the regulations were invalid and inapplicable to employment taxes and that federal law must respect the LLCs’ separate existence under Kentucky law.
- The district court consolidated the cases, granted summary judgment to the government, upheld the regulations under Chevron, and held Littriello personally liable.
- Littriello appealed.

## Issues

1. Whether the Treasury’s check-the-box regulations, treating a single-member LLC as a disregarded entity absent a corporate election, are a valid exercise of regulatory authority under the Internal Revenue Code.
2. Whether the regulations conflict with Morrissey v. Commissioner’s approach to entity classification.
3. Whether federal tax law may disregard a single-member LLC’s separate state-law existence when assigning federal tax liability.
4. Whether the check-the-box regulations apply to employment taxes.

## Decision

- The Sixth Circuit affirmed summary judgment for the government.
- The court held the Internal Revenue Code is ambiguous as to the classification of LLCs, and the Treasury’s regulations are a reasonable gap-filling interpretation entitled to Chevron deference.
- The court rejected the claim that Morrissey foreclosed the regulatory approach adopted in the check-the-box regime.
- The court held state-law entity status does not control federal tax classification; the LLCs could be disregarded for federal tax purposes despite separate existence under Kentucky law.
- The court held the regulations apply to employment taxes, making Littriello personally liable for the unpaid employment tax liabilities of his disregarded single-member LLCs.
- The court found proposed regulatory amendments did not affect the validity or enforceability of the regulations in effect.

## Legal Principles

- When the tax statute does not directly resolve entity-classification questions for newer business forms, Treasury may adopt reasonable classification rules under its delegated authority, and those rules receive Chevron deference.
- Under the check-the-box regulations, a single-member LLC that does not elect corporate treatment is classified as a disregarded entity, with tax liability attributed to the owner as a sole proprietor.
- Federal tax classification is not dictated by state-law entity forms; state recognition of an entity’s separate existence does not prevent federal law from disregarding it for tax purposes.
- Entity classification under the check-the-box regulations applies across federal tax regimes, including employment taxes.

## Conclusion

The Sixth Circuit upheld the Treasury’s check-the-box regulations as a valid interpretation of the Internal Revenue Code and held that, absent a corporate election, single-member LLCs are disregarded for federal tax purposes, making the owner personally liable for the LLCs’ unpaid employment taxes.


Littriello v. United States, 484 F.3d 372 (6th Cir. 2007)