-14-
3. Petitioners' Other Contentions
Petitioners contend that we should recognize Prindle for
Federal tax purposes because the State of Washington and Oxyfresh
recognized it as valid. We disagree. We need not recognize an
entity for Federal tax purposes even if it is recognized under
State law. Neely v. United States, 775 F.2d 1092 (9th Cir.
1985); Zmuda v. Commissioner, 79 T.C. at 720.
Petitioners contend that respondent may not rely on the
presumption of correctness because respondent did not call any
witnesses or introduce any evidence. We disagree. Respondent's
determination is presumed to be correct unless petitioners show
that it is arbitrary. Petitioners do not contend that
respondent's determination about Prindle is arbitrary.
4. Conclusion
We conclude that Mr. and Mrs. Fox kept substantially
unfettered powers of disposition and beneficial enjoyment of
trust property, the Prindle arrangement was a sham and had no
economic substance, and Mr. and Mrs. Fox formed Prindle to avoid
tax. We do not recognize Prindle for Federal tax purposes.
Thus, the income in question from Mr. and Mrs. Fox's real
estate and Oxyfresh activities is gross income to Mr. and Mrs.
Fox and not to Prindle during the years in issue, and Prindle
need not file Federal income tax returns for 1992 and 1993.4 It
4 In light of our decision, we need not decide respondent's
(continued...)
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011