If an individual taxpayer creates a legal corporation under state law, the government (i.e., the IRS) cannot disregard the entity and tax the individual taxpayer on the income.

Question

Quizplus · Accepted Answer

The IRS can disregard the entity and tax the individual if the corporation is found to be an alter ego of the taxpayer or if the formation and operation of the corporation do not comply with legal requirements, constituting a sham or lacking a legitimate business purpose. This is often referred to as "piercing the corporate veil."

If an Individual Taxpayer Creates a Legal Corporation Under State