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transactions with the other trusts and Midwest.7 Throughout the
1995 year, petitioner moved funds among and between the Asset
Trust, the Charitable Trust, and the Equity Trust in a circular
fashion. Petitioner labeled the movements of funds "loans" or
"loan repayments".
For tax purposes, the Charitable Trust filed 1994 and 1995
returns claiming it was a nonexempt charitable trust under
section 4947(a)(1), and it paid no tax for either year.
The Equity Trust, the Business Trust, and the Vehicle Trust
were dormant in 1994 and 1995, and each filed 1994 and 1995
income tax returns showing no taxable income.
All of the above-described trust tax returns for 1994 were
prepared by Savino. The Martins were not aware of petitioners'
participation in the trust scheme until late 1994 when they
prepared Midwest's tax return for that fiscal year. The Martins
discovered that Midwest purportedly paid no wages to petitioner,
7 One such series of transactions occurred on June 21, 1995,
when petitioner caused Midwest to pay the Asset Trust $14,247.
On that same day, all of the following occurred: (1) The Asset
trust paid $14,247 by check to the Charitable Trust; (2) the
Charitable Trust paid $14,247 by check to the Equity Trust; and
(3) the Equity Trust paid the $14,247 by check back to the Asset
Trust. Also on June 21, 1995, petitioner repeated three more
times this exact same series of movements of funds in a circular
fashion in the exact same amount, $14,247. Petitioner labeled
all of these advances "loans". Finally, petitioner caused the
Asset Trust to pay back the $14,247 to Midwest by check dated
June 21, 1995.
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