IRS application of substance-over-form doctrine | KPMG | US
Share with your friends

First Circuit: IRS application of substance-over-form doctrine rejected

IRS application of substance-over-form doctrine

The U.S. Court of Appeals for the First Circuit reversed the findings of the U.S. Tax Court that the individual taxpayers owed excise tax for excess contributions made to their Roth IRAs.


Related content

The taxpayers used a domestic international sales corporation (DISC) and Roth IRAs to reduce their federal taxes. The First Circuit rejected the IRS’s application of the substance-over-form doctrine to recharacterize the DISC-related payments to the Roth IRAs as contributions in excess of the contribution limits. 

The case is: Benenson v. Commissioner, No. 16-2066 and No. 16-2067 (1st Cir. April 6, 2018). Read the First Circuit’s decision (that includes a separate dissent): Benenson [PDF 72 KB]


The taxpayers (members of the same family) were the largest shareholders in a C corporation that was the parent corporation of a consolidated group of manufacturing companies with export sales. Through a series of transactions, the taxpayers transferred over $5 million from the company to the Roth IRAs. 

In 2012, the IRS issued notices of deficiency to the taxpayers (both corporate and individual taxpayers), and informed the taxpayers that the substance-over-form doctrine would be applied to reclassify the payments (even though it was agreed that the taxpayers had complied with the relevant provisions of the Code). The Tax Court upheld the deficiency determination.

The corporate taxpayer appealed to the Sixth Circuit, which in February 2017 reversed the Tax Court. Read TaxNewsFlash

The individual taxpayers appealed to the First Circuit, and that appellate court also reversed the Tax Court. The First Circuit majority found that the transaction did not violate the plain intent of the statutes and that the substance-over-form doctrine was not applicable.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal