Frank and Virginia Muhich - Page 10

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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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