Judge Mark V. Holmes claims Tax Court has gone back to Ancient Rome, but fortunately the gang at 400 Second Street, NW, is a lot “more collegial.”

To begin with, four years ago Judge Chiechi left in play the excess Roth IRA contributions of Celia Mazzei, 150 T. C. 7, filed 3/5/18. Income tax was off the table, due to SOL.

For the backstory, see my blogpost “Foolish Consistency – Redivivus,” 4/1/14.

Well, today ex-Ch J Michael B (“Iron Mike”) Thornton doesn’t need a dictionary chomp, because the tax benefits from Celia’s and famiglia’s Foreign Sales Corporation (a now-defunct export subsidy via Congressional largesse) are for income tax, not for the 6% overfunding Section 4973 hit.

The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Master Silt-Stirrer and Suetonius Scholar, Judge Mark V. Holmes, says ex-Ch J Iron Mike ignores 6 Cir precedent (though Mazzei is 9 Cir bound), and acts like Caligula. 150 T. C. 7, at p. 77. If Congress carelessly gave away the ranch twice, it’s not Tax Court’s job to remedy same.

The FSC was properly set up, even if Celia and famiglia bought shares for a buck a pop and got better than half-a-million funneled into their Roth IRAs. Celia’s reliance on her CPA of 29 years’ standing was justified. But Celia and family controlled both the FSC and their own C Corp who paid the commissions to the FSC when, how, and in what amounts they wished.

While the FSC legislation made this OK, and exempted same from Section 482 reshuffling, that was for income tax, says the majority. And the majority does the usual form-over-substance. The only party with any economic risk was Celia and famiglia. They were on all asides of the deal, and while that may be OK for income tax purposes, it was too great stretch to cover Roth IRA funding limits.

The Great Dissenter says the majority could wreck many small corporations, capitalized for pennies, which later made millions. No, says ex-Ch J Iron Mike.

“The dissent’s hypothetical scenario would not involve a mismatch between substance and form.  At the initial point of capitalization, the fair market value and the substantive economic value would be identical and equal to the capital investment.  As the day-to-day operations commenced, that initial value would begin to change in concert with changing expectations regarding future cashflows.  The fair market value and the substantive economic value of the stock would remain identical, whether the business was a success or not.  Petitioners’ situation is different because at the moment of purchase petitioners’ formal characterization of the purchase did not match the underlying substantive and related-party economics.” 150 T. C. 7, at p. 66 (Footnote omitted).

I agree with ex-Ch J Iron Mike. Celia and famiglia were doing a double-dip, and the statute upon which they relied gave them only a single dip.

The Great Dissenter again went too far. See my blogpost so entitled, 2/11/13.