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IRS: Stop Using Roth IRAs To Hide Business Income

By Staff Writer

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NU Online News Service, Jan. 2, 2004, 4:33 p.m. EST – The IRS wants to stop taxpayers from using companies that they own or control to hide the value of contributions to Roth individual retirement accounts.[@@]

A new notice warns that the IRS might disqualify the Roth IRAs of business owners who use Roth IRAs to shelter business income from taxes.

Michael Rubin, the author of the notice, describes a business owner who puts a shell corporation in his Roth IRA, then uses the shell corporation to buy receivables from his business for far less than the fair value. The owner would, in effect, be using a disguised contribution to the Roth IRA to cut the taxable income of his business, Rubin writes in the notice.

The IRS has posted the notice at //www.treasury.gov/press/releases/reports/rothiraabuses_notice_20048.pdf