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Roth IRAs Cannot Be S Corporation Shareholders, Ninth Circuit Holds - Emil Estafanous, CPA : Emil Estafanous, CPA

Roth IRAs Cannot Be S Corporation Shareholders, Ninth Circuit Holds

The Ninth Circuit, affirming a Tax Court, hold that a house whose solitary shareholder was a Roth IRA was not a stream S house when it was combined in 2003 (Taproot Administrative Services, Inc., No. 10-70892 (9th Cir. 3/21/12), aff’g 133 T.C. 202 (2009)). The taxpayer who determined a Roth IRA argued that he, as a particular customer of a IRA, should be treated as a S house shareholder, or, alternatively, a IRA should be treated likewise to a grantor trust or a competent subchapter S trust (QSST), available shareholders for S house purposes.

In rejecting a taxpayer’s justification that a IRA should be treated as a available trust underneath a S house eligibility rules, a Ninth Circuit remarkable that distinct grantor trusts and QSSTs, that are both taxed now on their income, IRAs and Roth IRAs are theme to deferred taxation on stream income and so are exclusive with a S house taxation rules. The justice mentioned helpfully Rev. Rul. 92-73, a usually IRS matter on a issue, that privately prohibits IRAs as S house shareholders (the statute was released before Roth IRAs were enacted in 1997). The justice also cited, as justification that IRAs were not dictated to be available S house shareholders, a 2004 dramatization of a order needing a slight category of banks with IRA shareholders to elect S status, that would not have been required if IRAs were already available shareholders.

The many engaging justification a taxpayer done on interest was that his Roth IRA was uncelebrated from a custodial account, that is a available S house shareholder underneath Regs. Sec. 1.1361-1(e) since it is a homogeneous of a “nominee, guardian, custodian, or an agent.” Under this reasoning, a Roth IRA was a custodial comment for a particular owner, and a owners of a IRA was a S corporation’s tangible owner. But a justice resolved that a form of custodial comment envisioned by a law was one in that a ultimate customer would be now taxed on a S corporation’s income, not one in that a taxation of a income would be deferred.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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