A recent IRS Chief Counsel Advice (CCA) clarifies who may sign a limited liability company's (LLC's) tax return when the LLC has a corporate managing member. CCA 201536025 addresses a situation in which a LLC (LLC-1) taxed as a corporation is managed by another LLC (LLC-2). LLC-2 is a single-member LLC, which is solely owned by a corporation. The CCA concludes that the officer of the corporation that owns LLC-2 has authority to sign LLC-1's return and the IRS can rely on the signature absent proof to the contrary indicating that the officer does not have such authority.
Additionally, the CCA notes that the LLC may be equitably estopped from asserting in the future that the officer did not have the authority to sign the tax return, a power of attorney or extensions of time for the IRS to assess tax (Form 872).
The CCA relies upon Section 6062, which provides that corporate returns must be signed by the "president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer duly authorized." This is repeated in the Form 1120 instructions under "Who Must Sign," where it says "the president, vice president, treasurer, assistant treasurer, chief accounting officer; or any other corporate officer (such as tax officer) authorized to sign." Other forms, such as closing agreements and Forms 872 must also be signed by these individuals.1
It is worth noting that Section 6062 only applies to LLCs which elect to be treated as corporations for tax purposes. However, LLCs do not have the same corporate governance structure as corporations. For example, LLCs are often managed by one or more managing members, rather than by officers and a board of directors.
When an LLC does not have an officer listed in Section 6062, the IRS previously concluded in CCA 201411024 that the person who was authorized to sign the Form 872 would be deemed a managing member or other individual authorized to act for the LLC, for tax matters, under state law. When the managing member is a corporation, any person authorized to act on behalf of the corporation may sign the LLC's return. Presumably, the authority of the officer is based on the officer's powers under state law, as opposed to the officer's authority to sign under the Internal Revenue Code.
Section 6062 also provides that "the fact that an individual's name is signed on the return shall be prima facie evidence that such individual is authorized to sign the return." The regulations extend the assumption to any statement or document made by or for a corporation.2
Under the common law doctrine of equitable estoppel, a taxpayer is prohibited from arguing that an individual was not authorized to sign a return or document if:
- there was a false representation or a wrongful misleading silence by the taxpayer;
- the representation or silence related to a question of fact and not an opinion or statement of law;
- the IRS was ignorant of the true facts; and
- the IRS was adversely affected.3
Equitable estoppel has been most frequently applied in the context of extensions of assessments of tax. The Service believes that whether or not an individual has authority to sign a return or other document is a matter of fact and not a legal issue. CCA 201536025 cites Union Texas International Corp. v. Commissioner4 , a 2012 Tax Court case, for support of its position.
In that case, the corporate taxpayer was merged into a new corporation. Officers of the initial corporate taxpayer, were not affiliated with the new corporation, and signed a number of Forms 872 to extend the assessment period for the new corporation. In concluding that the new corporation was estopped from challenging the validity of the signatures, the Tax Court held that whether the corporate taxpayer existed at the time the forms were signed and whether the officers had authority were questions of fact.5 However, whether the case may distinguishable from the situation contemplated by the CCA because in Texas International Corp., the Tax Court found that the corporate taxpayer encouraged the IRS' faulty assumption as to who had authority to sign the Forms 872.