Susan L. Bay - Page 6

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          than a grantor trust is also inconsistent with the manner in                
          which petitioner reported the items of income and deductions                
          attributable to the trust on her 1993 and 1994 Federal income tax           
          returns.  Furthermore, the restrictions on the distribution of              
          trust corpus, do not, as petitioner suggests, remove the trust              
          from the provisions of section 671.  See sec. 677.  The trust is            
          a grantor trust, and the positions of the parties will be                   
          considered accordingly.                                                     
               Contrary to petitioner's argument, section 67(e) does not              
          and cannot apply to grantor trusts.1  Because the items of income           
          and deductions are passed through to the grantor, the adjusted              
          gross income of a grantor trust, in effect, is not a viable                 
          notion either conceptually under the relevant statutory scheme,             
          or for reporting purposes.  Pursuant to section 671, petitioner,            
          as a grantor of the trust, is required to include in the                    
          computation of her taxable income, the items of income,                     
          deductions and credits of the trust that are attributable to her            
          proportionate share of the trust.  See sec. 1.671-4, Income Tax             
          Regs.  This, in fact, is what she did on her 1993 and 1994                  
          Federal income tax returns.  These items are treated as though              
          received or paid by her, instead of by the trust.  Sec. 1.671-              

               1Consequently, we need not address the controversy between             
          the parties regarding whether the type of expenses here in                  
          question would not have been incurred but for the fact that the             
          property was held in trust.  See O'Neill v. Commissioner, 994               
          F.2d 302 (6th Cir. 1993), revg. 98 T.C. 227 (1992).                         




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