Neil J. Christal, II & Kathryn E. Christal - Page 10

                                       - 10 -                                         

               A fundamental principle of tax law is that income is taxed             
          to the person who earns it.  Commissioner v. Culbertson, 337 U.S.           
          733, 739-740 (1949); Lucas v. Earl, 281 U.S. 111 (1930).  An                
          assignment of income to a trust is ineffective to shift the tax             
          burden from the taxpayer to a trust when the taxpayer controls              
          the earning of the income.  Vnuk v. Commissioner, 621 F.2d 1318,            
          1320 (8th Cir. 1980), affg. T.C. Memo. 1979-164.                            
               Taxpayers have the right to conduct their transactions in              
          such a manner and form as to minimize or altogether avoid the               
          incidence of taxation by whatever means the law permits.  Gregory           
          v. Helvering, 293 U.S. 465, 469 (1935).  This right, however,               
          does not bestow upon taxpayers a right to structure a paper                 
          entity to avoid taxation when that entity is without economic               
          substance.  Zmuda v. Commissioner, 79 T.C. 714, 719 (1982), affd.           
          731 F.2d 1417 (9th Cir. 1984).  The Commissioner is not required            
          to apply the tax laws in accordance with the form a taxpayer                
          employs where that form is a sham or inconsistent with economic             
          reality.  Higgins v. Smith, 308 U.S. 473, 477 (1940).                       
          Application of these principles requires us to look beneath the             
          surface of the entity and transactions at issue to examine their            
          reality.  Professional Servs. v. Commissioner, 79 T.C. 888, 924             
          (1982).                                                                     
               Where an entity is created that has no real economic effect            
          and which affects no cognizable economic relationships, the                 





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