Roth IRAs cannot be S corporation shareholders, Ninth Circuit holds

The Ninth Circuit, affirming the Tax Court, held that a corporation whose sole shareholder was a Roth IRA was not a valid S corporation when it was created in 2003 (Taproot Administrative Services, Inc., No. 10-70892 (9th Cir. 3/21/12), aff’g 133 T.C. 202 (2009)). The taxpayer who established the Roth IRA argued that he, as the individual beneficiary of the IRA, should be treated as the S corporation shareholder, or, alternatively, the IRA should be treated similarly to a grantor trust or a qualified subchapter S trust (QSST), permitted shareholders for S corporation purposes.