Frank and Virginia Muhich - Page 14

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               For all issues in this case except the penalty under section           
          6673, respondent's determination is presumed correct, and                   
          petitioners bear the burden of proving it wrong.  See Rule                  
          142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).  Where an             
          entity is created that has no real economic effect and which                
          affects no cognizable economic relationship, the substance of a             
          transaction involving the entity will control over its form.  See           
          Zmuda v. Commissioner, 79 T.C. 714, 720 (1982), affd. 731 F.2d              
          1417 (9th Cir. 1984); Markosian v. Commissioner, 73 T.C. 1235,              
          1241 (1980).  Regarding economic substance, we recently stated:             
          "The doctrine of economic substance becomes applicable, and a               
          judicial remedy is warranted, where a taxpayer seeks to claim tax           
          benefits, unintended by Congress, by means of transactions that             
          serve no economic purpose other than tax savings."  ACM                     
          Partnership v. Commissioner, T.C. Memo. 1997-115, affd. in part,            
          revd. on other grounds in part, dismissed in part and remd. in              
          part 157 F.3d 231 (1998).  We find such lack of economic purpose            
          in this case.                                                               
               More specifically, we have held a trust is not recognized              
          for tax purposes if it has no economic substance apart from tax             
          considerations.  See Markosian v. Commissioner, supra at 1244-              
          1245.  These principles apply even though an entity may have been           
          properly formed and may have had a separate existence under                 
          applicable local law.  See Zmuda v. Commissioner, supra at 720.             

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