- 19 - reasons incredible.11 Because the trusts lacked economic reality, the Court will ignore them for tax purposes.12 Gross Income/Deductions by Midwest We turn to the question of whether the Muhichs' gross income includes the "consulting fees" paid by Midwest to the Asset Trust and the $12,000 paid by Midwest to the trust promoters (issue 2). Related thereto is the question of whether section 162 allows Midwest to deduct these payments and the $5,500 paid to the trust promoters in 1996 (issues 3 and 4). As to the "consulting fees", respondent determined that these "fees" were nondeductible constructive dividends paid to petitioner by Midwest, and, as such, were includable in his gross income. Midwest contends that these "fees" are deductible by 11 Petitioner, for example, testified he adopted the trust scheme to protect Midwest and his assets. If such was the case, then why did the Muhichs not transfer their most significant assets to the trusts immediately upon creation (i.e., their various real estate holdings and the stock in Midwest)? Moreover, Midwest was already a corporation; thus, Midwest enjoyed the benefits of limited liability attendant to doing business in the corporate form. 12 Respondent does not contest petitioners' assertion that the amounts the Charitable Trust paid to sec. 501(c)(3) organizations are deductible by the Muhichs. The parties shall take these deductions into account in the Rule 155 computation.Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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