- 5 -
There was filed on behalf of the annuity trust a 1994
fiduciary Federal income tax return on which there was reported
no income relating to sale of the pizza business to Beagley and
Lundell.
On audit, respondent determined that the annuity trust was a
sham and that the $56,063 in proceeds received in 1994 from
Beagley and Lundell relating to sale to them of the pizza
business is to be treated as received by petitioner.3
OPINION
Gross income includes all income from whatever source
derived. See sec. 61(a). As a fundamental principle of Federal
income tax law, income is taxed to the person who earns the
income. See United States v. Basye, 410 U.S. 441, 450 (1973);
Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949); Lucas
v. Earl, 281 U.S. 111, 114-115 (1930); Holman v. United States,
728 F.2d 462, 464 (10th Cir. 1984); Leavell v. Commissioner, 104
T.C. 140, 148 (1995).
Tax laws do not recognize as valid for tax purposes sham
transactions or transactions that have no economic substance.
3 The $56,063 received in 1994 ($50,000 downpayment and $6,063
in total monthly installment payments) is treated by respondent
as taxable income to petitioner based on a gross profits
percentage of .5616 or $31,485. Also, under secs. 1245 and 1250,
on sale of the pizza business depreciation recapture income of
$62,426 relating to property of the pizza business is charged by
respondent to petitioner as taxable income.
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011