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$70,000 in construction costs, interest costs, and closing costs
for their new residence at 404 North Shore Drive; all of the
education costs for the Muhichs' college-aged children; utilities
for the Muhichs' personal residence; personal automobile expenses
of the Muhichs'; mortgage payments on the Muhichs' personal
residence at 1106 West Dianne; and trustee fees to the Muhichs.
In each year, the Asset Trust paid to the Charitable Trust the
funds that remained after all these payments.
For 1994 and 1995, the Asset Trust filed tax returns with
respondent (Forms 1041) wherein its reported income included the
consulting fees paid by Midwest for petitioner's services and
petitioner's interest income. After deducting therefrom the
above-described personal expenses of the Muhichs and the amounts
paid to the Charitable Trust, the Asset Trust reported zero
taxable income in each year.6
The other trusts did not engage in any business activity
during 1994 or 1995. The Charitable Trust distributed some money
in each year to various charities. With the balance, the
Charitable Trust participated in a series of circular
6 The Asset Trust did not deduct the $70,000 in construction
costs. Also, the Asset Trust elected to treat a large 1995
payment to the Charitable Trust as a charitable contribution
deduction on its 1994 return under sec. 642(c)(1).
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Last modified: May 25, 2011