Tax Court: Stanard v. Dir., Div. of Taxation, Docket No. 008149-2018; opinion by Fiamingo, J.T.C., decided February 24, 2020. For plaintiff - Joseph Kernen and Ellis L. Reemer (DLA Piper, LLP, attorneys); for defendant – Ramanjit K. Chawla (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
Held: Plaintiffs appealed the final determination of the defendant ("Director") disallowing an offset of partnership income with a partnership loss distributed to a single-member limited liability company ("LLC") owned by plaintiff husband, under N.J.S.A. 54A:5-1(k). The Director determined that the net income of the single member LLC, inclusive of the partnership loss at issue, constituted net profits from business and must be reported under N.J.S.A. 54A:5-1(b). The court found that by law, a single-member LLC is treated as a disregarded entity and the member is treated as the direct owner of the assets of the LLC for income tax purposes under N.J.S.A. 42:2C-92(b). The court further found that even if the single-member LLC is treated as a sole proprietorship for income tax purposes, the Director had misapplied his regulations in determining the net profits from business of the single-member LLC for the tax year under review. The court granted summary judgment for plaintiffs and denied the Director’s cross-motion for summary judgment.