Frank and Virginia Muhich - Page 19

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          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.             

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