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incorporated herein by this reference. Petitioners Matthew and
Janice Leonard, husband and wife, resided in West Sacramento,
California, at the time they filed their petition.
During 1990, 1991, 1993, and 1994, Mr. Leonard worked as a
firefighter, a welder, and a contractor. Customers paid for Mr.
Leonard's services by checks made payable to "Republic Project
(Federation)" (Republic) or other trusts1 which allegedly
constituted Republic.
Petitioners filed fiduciary income tax returns on Form 1041
for Republic for 1990, 1993, and 1994. For 1991, in lieu of a
Form 1041, petitioners filed a document for Republic entitled
"Beneficiaries Tax Report for 1992". Petitioners did not file
individual Federal income tax returns for 1990 and 1991.
Petitioners filed joint Federal income tax returns for 1993 and
1994. On these returns, petitioners reported income only from
trustee's fees relating to Republic.
Respondent determined that Republic was a sham trust and the
money paid to Republic is taxable income to petitioners.
Discussion
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
1 We use the words "trust" and "trustee" for convenience
only. Our use of these terms is not meant to indicate any
conclusion about the substance of the transactions at issue.
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