Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
RIGHT WITHOUT REASON? THE CHECK-THE-BOX CORPORATE OR PARTNERSHIP ELECTION REGULATIONS CORRECTLY HELD VALID: LITTRIELLO V. UNITED STATES
In Littriello v. United States,1 the District Court for the Western District of Kentucky became the first court to uphold the popular check-the-box regulations, Treasury Regulations 301.7701-1 through 301.7701-3. The check-the-box regulations allow small businesses to choose whether to be treated as corporations or partnerships for federal tax purposes. The court correctly granted summary judgment for the government, finding the regulations valid and holding the taxpayer liable for the unpaid employment taxes of his limited liability company. However, the court failed to articulate a convincing legal rationale for the regulations’ validity, thereby creating an opportunity for future challenges to them. Part I of this Note discusses the statutory, regulatory, and factual background of Littriello. Part II explains the court’s decision. Part III demonstrates that the court’s conclusion was correct, but the court’s rationale is weak. Accordingly, Part III also provides a sound rationale for the check-the-box regulations’ validity.