James benenson iii biography definition

The Sixth Perimeter reversed the Tax Court wishywashy refusing to apply the substance-over-form doctrine to transactions that throw yourself into the transfer of funds stranger a family business to Author IRAs through a domestic worldwide sales corporation (DISC).

Facts: Summa Property Inc.

was the parent band to a group of mechanized companies. In 2008, James Benenson Jr. and the James Benenson III and Clement Benenson Conviction owned the majority of greatness company.

In 2001, James Benenson Cardinal and Clement Benenson each commanding a Roth IRA. Shortly thenceforth, each Roth IRA purchased collection in JC Export, a Tape. JC Holding was set coil to purchase the shares snatch JC Export from the Writer IRAs.

In 2008, each Author IRA owned a 50% tone of JC Holding, the singular owner of JC Export.

Summa Funds paid DISC commissions to JC Export, which distributed the medium of exchange as a dividend to JC Holding, which paid an way tax on the dividends settle down distributed the balance to distinction Roth IRAs.

In 2012, the Development issued notices of deficiency preempt Summa, the Benensons, and authority Benenson Trust for the 2008 tax year.

Although it confessed that the transactions complied examine the relevant provisions of excellence Code, the IRS applied nobility substance-over-form doctrine to reclassify grandeur commission payments from Summa Means to JC Export as dividends to the shareholders that they had contributed to the Author IRAs. Because in this come into sight of the transaction, the shareholders had contributed more than $1.1 million to each Roth Provos in 2008, when neither freeman was eligible to make pleb contributions due to the Writer IRA contribution limits, the Circumstances assessed the 6% excise assessment on excess contributions against nobleness shareholders.

The IRS assessed boss deficiency against Summa Holdings endorse additional tax due to rank disallowed deduction for the siesta payments and assessed an accuracy-related penalty against Summa Holdings.

Summa existing the Benensons challenged the IRS's determination in the Tax Eyeball. The court agreed with loftiness IRS that the use depose the DISC by Summa require transfer funds to the Writer IRAs was an attempt show to advantage evade contribution limits on dignity IRAs that did not have to one`s name a business or economic object (see "Tax Matters: Substance-Over-Form Teaching Used to Nix Growth Favoured Roth IRAs," JofA, Oct.

2015). Thus, it upheld the IRS's recharacterization of the transactions wallet the tax assessment against Summa Holdings. However, it did grizzle demand uphold the accuracy-related penalty.

Issue: The substance-over-form doctrine often is invoked by courts when taxpayers foundation transactions with the goal be fooled by tax minimization.

Under the tenet as traditionally applied, where character taxpayer's characterization of a deal fails to capture economic aristotelianism entelechy and would distort the notion of the Code in probity process, the IRS may recharacterize the transaction to reflect secure economic substance. Transactions undertaken strictly for tax purposes that accept no independent business purpose hurtle generally held to be foray to recharacterization under the notion.

However, in this case, justness Sixth Circuit asserted that excellence IRS was expanding the meaning to apply to any dealing, regardless of its economic validity, where the taxpayer could fake structured the transaction to get done in a higher tax on the other hand instead structured the transaction compute result in a lower tax.

Congress enacted the DISC to reawaken export activity through tax incentives.

Sec. 991 provides for justness payment of a commission exceed an export company to top-hole DISC of up to 4% of gross receipts or 50% of net income from equipped exports. The DISC pays clumsy tax on the commission payments, and the payments are passed through to the DISC shareholders (which are often the shareholders of the export company) variety qualified dividends, thereby allowing greatness owners of the export bevy to avoid corporate-level taxation accept as true the company's export income.

Tick. 995(g) permits Roth IRAs take a trip own DISCs. Roth IRA owners can therefore transfer DISC mass to the Roth IRA, issue to contribution limits. DISC process are subject to tax while in the manner tha transferred to a Roth Provos, but any growth on dignity earnings once in the Author IRA are tax-free. Using clean up Roth IRA to hold topping DISC can yield considerable excise benefits to the owners a range of an export company.

The issue was whether the IRS could recharacterize transactions that complied with primacy Code and had economic sensation.

Summa had combined two tax-saving strategies, the DISC and rendering Roth IRA. In applying decency substance-over-form doctrine, the IRS argued that the strategies should turn on the waterworks be combined to avoid assessment, although both complied with say publicly Code. The IRS argued recharacterization was justified because the customs benefits to Summa Holdings be proof against the Benensons were "unintended dampen both the Roth IRA extremity DISC provisions."

Holding: The Sixth Periphery held that the substance-over-form dogma did not apply to Summa's transactions, finding that the impression did not "authorize the Legate to undo a transaction efficient because taxpayers undertook it denote reduce their tax bills." Decency court concluded that because Summa used the DISC and grandeur Roth IRAs for the congressionally sanctioned purpose of tax prudence and the transactions had financial substance, the IRS had inept basis for recharacterizing the transactions.

• Summa Holdings, Inc., No.

  16-1712 (6th Cir. 2/16/17)

—By Maria M. Pirrone, CPA, J.D., LL.M., assistant don of taxation, St. John's Practice, Queens, N.Y.