Briefing Underway in Mazzei

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February 5, 2019

The taxpayers have filed their opening brief in Mazzei urging the Ninth Circuit to reverse the Tax Court’s use of the substance-over-form doctrine to recharacterize transactions between Roth IRAs, a Foreign Sales Corporation (“FSC”), and an export company. The brief focuses on the similarities between the FSC-Roth IRA structure in Mazzei and the Domestic International Sales Corporation (“DISC”)-Roth IRA structure that the taxpayers implemented in Summa Holdings. Citing principles of comity and uniformity, the brief urges the Ninth Circuit to follow decisions of the First, Second, and Sixth Circuits in Summa Holdings and the related Benenson cases, which held that the IRS (and the Tax Court) could not use the substance-over-form doctrine to recharacterize code-compliant transactions between the DISC and the taxpayers’ Roth IRAs. See our prior report here. Rejecting the Tax Court’s attempt to distinguish its analysis in Mazzei from Summa Holdings, the brief characterizes the Tax Court’s fundamental holding as “yet another ‘substance over form’ attack on a transaction the Tax Court just doesn’t like.” And borrowing a pithy formulation from Fabreeka Prods. v. Commissioner, 294 F.2d 879, 879 (1st Cir. 1961), the brief contends that the Tax Court impermissibly overreached in recharacterizing the transaction because “[i]f there really is a hole in the tax revenue dike, the Congressional ‘thumb’—not the Tax Court’s—should be applied.”

The government’s answering brief is due on March 11, 2019.

Mazzei – Taxpayer Opening Brief