Terry Ellis v. Commissioner of IRS

DOTY, District Judge.

Terry and. Sheila Ellis appeal from the decision of the tax court 2 finding a deficiency in their 2005 income tax and imposing related penalties. Because we conclude that Mr. Ellis engaged in a prohibited transaction with respect to his individual retirement account (IRA), we affirm.

I

On May 25, 2005, an attorney for Mr. Ellis formed CST Investments, LLC (CST), to engage in the business of used automobile sales in Harrisonville, Missouri. The operating agreement for CST listed two members: (1) a self-directed IRA belonging to Mr. Ellis, and (2) Richard Brown, an unrelated…