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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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