Excise and employment tax treatment of disregarded entities clarified.

• Author: Nevius, Alistair M.

The IRS issued final regulations (T.D. 9553) clarifying the treatment of disregarded entities with respect to employment and certain excise taxes. The rules adopt proposed regulations issued in 2009 (REG-116614-08).

Under Regs. Sec. 301.7701-2(a), business entities with a single owner may be disregarded as an entity separate from their owner (disregarded entities) for federal tax purposes. However, Regs. Secs. 301.7701-2(c)(2)(iv) and (v) specify that disregarded entities are not treated as separate entities for purposes of employment taxes and certain excise taxes, respectively. The final regulations clarify that, in such cases, an otherwise disregarded entity is treated as a corporation with respect to the employment and excise taxes.

The excise taxes to which this rule applies are generally those in Code chapters 31 through 36 and 38, including those on retail, manufacturing, facilities and services, wagering activities, and certain insurance policies. They do not include the indoor tanning services excise tax enacted in 2010 under Sec. 5000B, although in the regulations' preamble the IRS acknowledged the indoor tanning tax presents similar issues...