In Uncategorized on 07/18/2017 at 16:29

A couple old favorites show up in today’s T. C. Memo. No. 142, filed 7/18/17; it’s Block Developers, LLC, William J. Maxam, APC, Tax Matters Partner, et al., and once again it’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Inveterate, Industrious, Indefatigable, Irrefragable, Incontrovertible, Ineluctable, and Illustrious Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes, back with our friends the Blocking Janssons, casting a sidewise glance at the Repettos.

Ah, the Janssons, inventors and vendors of concrete blocks that stop Californian landslides and sprout vegetation at the same time. You’ll find more about them in my blogposts “A Trust Is a Trust Is a Trust,” 2/26/14, and “Block That Motion,” 10/16/14. The Repettos show up in my blogpost “Waxing Roth,” 6/15/12.

Today it’s form over substance, as the LLC set up by the abovementioned William J. Maxam, now or formerly an attorney, is nothing but a conduit for shoveling money from the Janssons’ cash cow to their Roth IRAs.

IRS mucked up the NBAPs, the FPAAs, and the various SNODs, but Judge Holmes put them all right. And he winds up with the Janssons’ S Corp and the LLC as the only petitioners in this case.

“[S Corp]’s sale of the Verdura Block patents to [LLC] had no substantive effect on how Jansson operated his businesses.  Jansson’s companies continued to produce the blocks, test the blocks, and make sure the blocks were certified.  The Jansson family continued to attend trade shows and take on clients without any mention of [LLC]s.  And the expense of performing these tasks remained on Jansson–he was never reimbursed by [LLC].” 2017 T. C. Memo. 142, at pp. 28-29.

The LLC’s recordkeeping was spotty at best, it had no employees, and the excuse that it was meant to raise cash for the Janssons’ S Corp was “illogical” because the cash to pay for the Block patents came from the Janssons’ S Corp in the first place. 2017 T. C. Memo. 142, at p. 30.

And notwithstanding all the mathematical backing-and-filling about valuing the patents supposedly sold to the LLC, the figure for the price of the patents came months before the backing-and-filling. And whatever the price, there was no real sale.

“Even if the Janssons correctly valued the sale of the patents on paper, and even if they correctly set the royalty rates that they charged [S Corp] on paper, we cannot ignore the underlying reality of the transaction.  We find that [LLC] was just a conduit to shunt money to the Janssons’ Roth IRAs and was not engaged in any real business activity.  We therefore find that [LLC]’s transfers to the Janssons’ Roth IRAs were excess contributions that triggered the excise tax the Commissioner seeks.” 2017 T. C. Memo. 142, at p. 30.

However, lest IRS get too pixilated, Judge Holmes points out that not every Roth IRA tax dodge is a prohibited dodge. He cites Summa Holdings Inc., 848 F.3d 782 (6 Cir., 2017). But there the Roth-pumping dodge is legitimate because Congress said so. Summa was a DISC, and that’s a special case.

At the end for the Janssons, the LLC is just a conduit, and the 6% per year excess Roth contributions hit is sustained, plus the additions to tax.


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