Substance-over-form doctrine used to nix growth within Roth IRAs

The Tax Court held that payments made by a corporation to a domestic international sales corporation (DISC) that was indirectly owned by two Roth IRAs were not DISC commissions but rather dividends to individual shareholders followed by excess contributions to their Roth IRAs, resulting in excise ta...

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Bibliographic Details
Published in:Journal of Accountancy 2015-10, Vol.220 (4), p.75
Main Author: Baker, Warren L
Format: Article
Language:English
Subjects:
C corporations
Dividends
Excise taxes
Fines & penalties
Foreign Sales Corporations
Roth IRAs
Stockholders
Substance over form
Tax court decisions
Tax courts
Taxpayers
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Summary:The Tax Court held that payments made by a corporation to a domestic international sales corporation (DISC) that was indirectly owned by two Roth IRAs were not DISC commissions but rather dividends to individual shareholders followed by excess contributions to their Roth IRAs, resulting in excise tax and penalties. The court first noted the taxpayers' acknowledgment that their sole reason for entering into the transactions was to transfer money into the Benenson Roth IRAs so that income on assets could accumulate and be distributed tax-free. The taxpayers also stipulated that there was no nontax business purpose for the transactions. The court, citing several Tax Court and US Supreme Court cases, agreed with the IRS's argument that the form of the transaction did not necessarily control the tax result.
ISSN:0021-8448
1945-0729