As A Taxpayer, Did You Know You Are Treated As An Entity?
Posted on: March 5, 2010 by: admin
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A skilled researcher in my Tips & Tricks for Court Yahoo Group, Carrol <1seafishatcomcast.net> posted this to the groups respecting the treatment of all taxpayers as “entities”:
I was very interested in the term taxpayer and what that really means. I did some research and this is what I came up with:
The description of the Individual Master File in the IRM says:
“IRM 9.4.4.2.1.3 (01-30-2001)
(2)The returns filed include Income Tax Forms 1040, 1040A, 1040NR, 1040 C, 1040SS, 1040PR and Estimated Tax Returns 1040ES. Each taxpayer account has an entity module and one or more tax modules.
The entity module contains data which describes that taxpayer as an entity and which applies to all records of the taxpayer.”
When the IRS is referring to a Taxpayer the are referring to an “entity”.
The entity classification rules are published in the regulations for 26 USC Section 7701. 26 CFR 602.101 shows OMB 1545-1486 is the collection of information authorized for 26 CFR 301.7701-3
The collections of information under OMB 1545-1486, published at 61 FR 66584, December 18, 1996 is titled “Simplification of Entity Classification Rules”. Stated by the regulations,
“Summary: This document contains final regulations that classify certain business organizations under an elective regime. These regulations replace the existing classification rules.”
“(a) Organizations for federal tax purposes-(1) In general. The Internal Revenue
Code prescribes the classification of various organizations for federal tax purposes….
(4) Single Owner organizations. Under §§ 301-7701-2 and 301-7701-3, certain organizations that have a single owner can choose to be recognized or disregarded as entities separate from their owners.” OMB 1545-1486, 61 FR 65588 & 65589, 26 CFR §301-7701-1 69 FR 43317 July 20, 2004
“Background Section 301.7701-3(a) provides that an eligible entity with two or more owners may elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or a partnership, and a eligible entity with a single owner may elect to be classified as an association or to be disregarded as an entity separate from its owner. Section 301.7701-3(b) provides that unless the entity elects otherwise, a domestic eligible entity is a partnership if it has two or more owners or is disregarded as an entity separate from its owner if it has a single owner.”
69 FR 43318, July 20, 2004
“If the late or invalid election is not perfected, the default rules will maintain passthrough taxation treatment by classifying the entity as a partnership or a disregarded entity.”
Default classification of an entity falls to a partnership or a disregarded entity.
Now we have Taxpayer defined as an entity, defaulting to a partnership or a disregarded entity (AKA a entity, disregarded as being separate from its owner), unless an election is in place.
This applies to all records of the taxpayer. So anytime they are addressing the taxpayer -
JOHN DOE, a disregarded entity
JOHN DOE, a partnership entity
JOHN DOE, a corporation entity
JOHN DOE, a trust entity
No other classifications are specified in their regulations.
Carrol
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[43] A while back Carol, a member of this group, posted to the effect she had discovered that the IRS was treating us as “entities”. I was looking up discussions on the Foreign Sovereign Immunities Act in Wikipedia and discovered that the Supreme Court ruled this year that it does not apply to individuals acting on behalf of governments because they are not “entities”. Interesting to see them apply principles of statutory construction to a non-IRS issue. I see where the principles of statutory construction applied here could be directly applied to the Internal Revenue Code with no problem at all. Good stuff on the word “includes” here as well.
We turn first to the term “agency or instrumentality of a foreign state,” §1603(b). It is true that an individual official could be an “agency or instrumentality,” if that term is given the meaning of “any thing or person through which action is accomplished,” In re Terrorist Attacks on Sept. 11, 2001, 538 F. 3d 71, 83 (CA2 2008). But Congress has specifically defined “agency or instrumentality” in the FSIA, and all of the textual clues in that definition cut against such a broad construction.
[44] First, the statute specifies that ” ‘agency or instrumentality . . .’ means any entity” matching three specified characteristics, §1603(b) (emphasis added), and “entity” typically refers to an organization, rather than an individual. See, e.g., Black’s Law Dictionary 612 (9th ed. 2009). Furthermore, several of the required characteristics apply awkwardly, if at all, to individuals. The phrase “separate legal person, corporate or otherwise,” §1603(b)(1), could conceivably refer to a natural person, solely by virtue of the word “person.” But the phrase “separate legal person” typically refers to the legal fiction that allows an entity to hold personhood separate from the natural persons who are its shareholders or officers. Cf. First Nat. City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U. S. 611, 625 (1983) (“Separate legal personality has been described as ‘an almost indispensable aspect of the public corporation’ “). It is similarly awkward to refer to a person as an “organ” of the foreign state. See §1603(b)(2). And the third part of the definition could not be applied at all to a natural person. A natural person cannot be a citizen of a State “as defined in section 1332(c) and (e),” §1603(b)(3), because those subsections refer to the citizenship of corporations and estates. Nor can a natural person be “created under the laws of any third country.” Ibid.*fn8 Thus, the terms Congress chose simply do not evidence the intent to include individual officials within the meaning of “agency or instrumentality.”*fn9
Cf. Dole Food Co. v. Patrickson, 538 U. S. 468, 474 (2003) (describing §1603(b) as containing “indicia that Congress had corporate formalities in mind”).
[45] Petitioner proposes a second textual route to including an official within the meaning of “foreign state.” He argues that the definition of “foreign state” in §1603(a) sets out a nonexhaustive list that “includes” political subdivisions and agencies or instrumentalities but is not so limited. See Brief for Petitioner 22–23. It is true that use of the word “include” can signal that the list that follows is meant to be illustrative rather than exhaustive.*fn10 And, to be sure, there are fewer textual clues within §1603(a) than within §1603(b) from which to interpret Congress’ silence regarding foreign officials. But even if the list in §1603(a) is merely illustrative, it still suggests that “foreign state” does not encompass officials, because the types of defendants listed are all entities. See Russell Motor Car Co. v. United States, 261 U. S. 514, 519 (1923) (“[A] word may be known by the company it keeps”).
[46] Moreover, elsewhere in the FSIA Congress expressly mentioned officials when it wished to count their acts as equivalent to those of the foreign state, which suggests that officials are not included within the unadorned term “foreign state.” Cf. Kimbrough v. United States, 552 U. S. 85, 103 (2007) (“Drawing meaning from silence is particularly inappropriate . . . [when] Congress has shown that it knows how to [address an issue] in express terms”). For example, Congress provided an exception from the general grant of immunity for cases in which “money damages are sought against a foreign state” for an injury in the United States “caused by the tortious act or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office.” §1605(a)(5) (emphasis added). The same reference to officials is made in a similar, later enacted exception. See 28 U. S. C. A. §1605A(a)(1) (Supp. 2009) (eliminating immunity for suits “in which money damages are sought against a foreign state” for certain acts “engaged in by an official, employee, or agent of such foreign state while acting within the scope of his or her office, employment, or agency”); see also §1605A(c) (creating a cause of action against the “foreign state” and “any official, employee, or agent” thereof).*fn11 If the term “foreign state” by definition includes an individual acting within the scope of his office, the phrase “or of any official or employee . . .” in 28 U. S. C. §1605(a)(5) would be unnecessary. See Dole Food Co., 538 U. S., at 476–477 (“[W]e should not construe the statute in a manner that is strained and, at the same time, would render a statutory term superfluous”).
[47] Other provisions of the statute also point away from reading “foreign state” to include foreign officials. Congress made no express mention of service of process on individuals in §1608(a), which governs service upon a foreign state or political subdivision. Although some of the methods listed could be used to serve individuals-for example, by delivery “in accordance with an applicable international convention,” §1608(a)(2)-the methods specified are at best very roundabout ways of serving an individual official. Furthermore, Congress made specific remedial choices for different types of defendants. See §1606 (allowing punitive damages for an agency or instrumentality but not for a foreign state); §1610 (affording a plaintiff greater rights to attach the property of an agency or instrumentality as compared to the property of a foreign state). By adopting petitioner’s reading of “foreign state,” we would subject claims against officials to the more limited remedies available in suits against states, without so much as a whisper from Congress on the subject. (And if we were instead to adopt petitioner’s other textual argument, we would subject those claims to the different, more expansive, remedial scheme for agencies). The Act’s careful calibration of remedies among the listed types of defendants suggests that Congress did not mean to cover other types of defendants never mentioned in the text.
[48] In sum, “[w]e do not . . . construe statutory phrases in isolation; we read statutes as a whole.” United States v. Morton, 467 U. S. 822, 828 (1984). Reading the FSIA as a whole, there is nothing to suggest we should read “foreign state” in §1603(a) to include an official acting on behalf of the foreign state, and much to indicate that this meaning was not what Congress enacted.*fn12 The text does not expressly foreclose petitioner’s reading, but it supports the view of respondents and the United States that the Act does not address an official’s claim to immunity. Samantar v. Yousuf, 2010.SCT.0000086< http://www.versuslaw.com>¶ 43-48; No. 08-1555 (2010).
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