T.C. Memo. 2011-98

UNITED STATES TAX COURT

MICHAEL S. AND PAMELA S. OHSMAN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 23756-08. Filed May 3, 2011.

P-H’s Roth IRA formed an FSC which entered into a

commission agreement with P-H’s wholly owned C corporation. 

For excise tax purposes only, R recharacterized commission

payments from the C corporation to the FSC as distributions

to P-H followed by P-H’s contribution of the proceeds to his

Roth IRA. R determined that Ps were liable for excise taxes

on excess contributions to P-H’s Roth IRA under sec. 4973,

I.R.C., and additions to tax under sec. 6651(a)(1), I.R.C.,

for failing to file the appropriate information returns.

Held: The transactions must be treated consistently

for sec. 4973, I.R.C., and income tax purposes.

Held, further, the commission payments from P-H’s C

corporation do not represent excess contributions to P-H’s

Roth IRA.

Held, further, Ps are not liable for excise taxes under

sec. 4973, I.R.C.

Held, further, Ps are not liable for additions to tax

under sec. 6651(a)(1), I.R.C.
-2-

Neal J. Block, Robert S. Walton, and Brian C. Dursch, for

petitioners.

Peter N. Scharff, for respondent.

MEMORANDUM OPINION

NIMS, Judge: This matter is before the Court on

petitioners’ motion for summary judgment under Rule 121 (Motion).

Respondent determined the following deficiencies and

additions with respect to petitioners’ Federal income tax:

Addition to Tax

Year Deficiency Sec. 6651(a)(1)

2001 $79,293 $19,823.25

2002 85,595 21,398.75

2003 85,595 21,398.75

2004 85,595 21,398.75

2005 85,355 16,105.75

2006 85,355 21,300.75

The issues for consideration are: (1) Whether petitioners

are liable for excise taxes under section 4973 and (2) whether

petitioners are liable for additions to tax under section

6651(a)(1). Unless otherwise indicated, all section references

are to the Internal Revenue Code in effect for the years in

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.
-3-

Background

For the purposes of deciding the Motion only, the following

facts are derived from the affidavits and exhibits submitted by

the parties and the parties’ pleadings. Petitioners resided in

Arizona when they filed their petition.

Michael S. Ohsman (petitioner) owned 100 percent of Ohsman &

Sons Co., Inc. (Ohsman), a C corporation which was in the hide

trading business. Petitioner established a Roth IRA which

subscribed to all of the previously unissued stock of Ohsman

Export, Inc. (Ohsman Export), a foreign sales corporation (FSC).

From 1999 through 2001 Ohsman made commission payments to

Ohsman Export (Ohsman commission payments) of $104,896 in 1999,

$3,152,714 in 2000, and $3,585,712 in 2001. Ohsman Export

accordingly reported taxable income of $27,160, $192,246, and

$259,305, and paid taxes of $5,469, $58,226, and $84,379,

respectively.

Ohsman Export made actual distributions to petitioner’s Roth

IRA of $635,000 in 2000 and $789,559 in 2001.

On July 1, 2008, respondent issued petitioners a statutory

notice of deficiency in which he determined that payments from

Ohsman to Ohsman Export each represented: (1) A distribution

from Ohsman Export to petitioner and (2) a subsequent
-4-

contribution of the proceeds to petitioner’s Roth IRA. 

Respondent determined that the amounts deemed contributed to the

Roth IRA were excess contributions subject to the section 4973

excise tax. Respondent also determined that petitioners were

liable for additions to tax under section 6651(a)(1) for failure

to file Forms 5329, Additional Taxes on Qualified Plans

(Including IRAs) and Other Tax-Favored Accounts.

On September 26, 2008, petitioners filed a petition with

this Court. On April 14, 2009, petitioners filed the Motion.

Discussion

I. Summary Judgment

Summary judgment may be granted when there is no genuine

issue of material fact and a decision may be rendered as a matter

of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C.

518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). The moving

party bears the burden of proving there is no genuine issue of

material fact, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment. Dahlstrom

v. Commissioner, 85 T.C. 812, 821 (1985); Jacklin v.

Commissioner, 79 T.C. 340, 344 (1982). The adverse party must

set forth specific facts showing that there is a genuine issue

for trial and may not rest on mere allegations or denials in his

pleadings. Rule 121(d).
-5-

Petitioners’ return preparer, Mr. DeKock, described Ohsman’s

payment of FSC commissions to Ohsman Export and the subsequent

distribution Ohsman Export made to petitioner’s Roth IRA

(Transaction). Respondent has not contested any part of Mr.

DeKock’s affidavit and claims only that he is unable to do so

because he has not had a reasonable opportunity to conduct

discovery. While respondent may require discovery to obtain the

evidence necessary to resolve the factual issues that are in

dispute, the absence of discovery should not prevent him from

being able to identify what those disputed issues are.

Respondent may not rely on generalized allegations that material

issues of fact potentially exist.

Accordingly, we find and hold that there is no genuine issue

of material fact and that judgment may be rendered as a matter of

law.

II. Section 4973 Excise Taxes

Section 4973 imposes a 6-percent excise tax on excess

contributions to IRAs. The tax applies each year until the

excess contributions are eliminated from the taxpayer’s IRA. See

sec. 4973(b)(2).

Respondent contends that petitioner used the Transaction as

vehicle to improperly shift value into his Roth IRA.

Respondent contends that the Ohsman payments therefore
-6-

represented, in substance, excess contributions to petitioner’s

Roth IRA. Respondent has amended his recharacterization of the

Transaction as described in the notice of deficiency and now

argues that the Transaction represents a distribution from Ohsman

to petitioner followed by petitioner’s contribution of the

proceeds to his Roth IRA.

We previously rejected this argument in a case involving

similar transactions. See Hellweg v. Commissioner, T.C. Memo.

2011-58. In Hellweg, the Commissioner attempted to use the

substance-over-form doctrine to recharacterize, for excise tax

purposes only, commission payments from an S corporation to a

domestic international sales corporation owned by the taxpayers’

Roth IRAs as excess contributions. We held that the Commissioner

could not do so without also making a corresponding income tax

adjustment because (1) section 4973 was intertwined with and

inseparable from the income tax regime and (2) the Commissioner’s

approval of the transactions for income tax purposes undermined

his attempted use of the substance-over-form doctrine.

Respondent has neglected to challenge the substance of the

Transaction for income tax purposes. Consequently, he cannot

rely on the substance-over-form doctrine to recharacterize the

Transaction for purposes of section 4973 only.

For these reasons, we hold that the Ohsman commission

payments do not constitute excess contributions to petitioner’s 
-7-

Roth IRA. Accordingly, we will grant petitioners summary

judgment as to the issue of their liability for excise taxes

under section 4973.

III. Section 6651(a)(1) Additions to Tax

Section 6651(a)(1) imposes a 5-percent addition to tax for

each month or portion thereof a required return is filed after

the prescribed due date. Taxpayers are required to file a Form

5329 for each year they have excess contributions to their IRA. 

See Frick v. Commissioner, T.C. Memo. 1989-86, affd. without

published opinion 916 F.2d 715 (7th Cir. 1990). Because

petitioner did not make excess contributions to his Roth IRA,

petitioners were not required to file Forms 5329 and are

therefore not liable for additions to tax under section

6651(a)(1).

Accordingly, we will grant petitioners summary judgment as

to the section 6651(a)(1) additions to tax.

To reflect the foregoing,

An appropriate order and

decision will be entered

granting petitioners’ motion

for summary judgment.