Tax Court Ruling Could Widen Divide Over Substance Doctrine

Law360 (March 23, 2018, 5:01 PM EDT) -- The U.S. Tax Court recently found that an arrangement that channeled money from a family business through a Bermuda-based foreign corporation to their Roth IRA ran afoul of the substance-over-form doctrine, threatening to crack open a divide over whether transactions that comply with the tax code can be invalidated under the doctrine.

In Mazzei v. Commissioner, decided March 5, the court applied a substance-over-form analysis and said the payments made from a Bermuda-based foreign sales corporation were, in substance, contributions from the Mazzei family members, and they owed excise taxes on amounts above the Roth IRA contribution limits.

Judge Michael B. Thornton,...

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