Self-Directed IRA owners scored a win in federal Tax Court last month. A federal Appeals Court overturned a lower court’s ruling and affirmed your right to use a DISC in conjunction with a Roth IRA to minimize federal taxes. In fact, the Appeals Court judge’s decision in Summa Holdings, Inc. v. Commissioner went so far as to compare the IRS’s actions to the Emperor Caligula.

It started over 10 years ago, when two brothers invested $3,000 into export business that began to grow. Over the years since, the two brothers have transferred as much as 5.2 million into a Self-Directed IRA, specifically, Roth IRAs, via a family owned DISC, or domestic international sales commission – effectively sheltering the growth from further taxation.

The IRS cried “foul,” and argued that even though combining the Roth IRA with the DISC to shelter the growth from taxes violated no tax law, it violated the spirit of the law.

Their argument gent like this: The two brothers had incomes that normally should have prevented them from making Roth IRA contributions, and at any rate, the Roth IRA contribution limit was limited to just a few thousand dollars at the time the transfers into their IRAs were made. The IRS argued that the two brothers owed income tax on DISC commissions, as well as penalties for over funding their Roth Accounts. The lower court ruled for the IRS, and the brothers appealed the ruling.

No dice, ruled the Appeals Court, slapping down the IRS’s attempt to expand plainly written statutes well beyond their clear meaning. The higher court ruled that the DISC structure and Roth IRA were both created by Congress itself to incentivize specific behaviors, and that the IRS could not then go back and penalize taxpayers for maximizing the benefits of the structures that Congress itself created.

From the judge’s opening paragraph in the ruling: “Caligula posted the tax laws in such fine print and so high that his subjects could not read them. Suetonius, The Twelve Caesars, bk. 4, para. 41 (Robert Graves, trans., 1957). That’s not a good idea, we can all agree. How can citizens comply with what they can’t see? And how can anyone assess the tax collector’s exercise of power in that setting?”

The judge’s opinion stated that Congress had already made it clear that corporations and IRAs can own shares in DISCs. “The owner of a closely held export company could transfer money from the company to the DISC, as the statute encourages, and pay some (or all) of that money as a dividend to its shareholders, allowing the money to enter the Roth IRA and grow there. The IRA account holder, it is true, would have to pay the high unrelated business income tax—here roughly 33%—when the DISC dividends go into the IRA. But once the Roth IRA receives the money, the account holder could invest it freely without having to pay capital gains taxes on increases in the value of each share or incomes taxes on the dividends received—just like other Roth IRA owners who buy shares of stock in companies that generate considerable dividends and rapid growth in share value. As with all Roth IRAs, the owner would not have to pay any individual income or capital gains taxes when the assets leave the account after he hits the requisite retirement age.

That’s how the tax laws worked at the time of the relevant transactions,” wrote the judge.