By Ralph A. Castelli, Jr.

In mid-winter, our Sixth Circuit Court of Appeals, in Summa Holdings, Inc. v. Commissioner, upheld the taxpayer’s use of a domestic international sales corporation (DISC) to transfer amounts from a C corporation to Roth IRA’s of the sons of the controlling shareholder of the C corporation involved. As a result of this planning, the IRAs received millions of dollars over a short period of time, despite Roth contribution limits and eligibility requirements. The IRS had argued that this was a device clearly to avoid tax, and attacked the transaction on a substance over form doctrine. The appellate court, however, reached the conclusion that while tax avoidance was the purpose of the transactions, the actions of the taxpayer were “congressionally sanctioned” as they came within the language of the code. Some commentators have suggested that this decision continues the erosion of the substance over form doctrine.

 


For further information regarding these matters, please contact Mr. Castelli at 248.740.5668 or via email.