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After the annuity trust was established and the pizza
business was purportedly transferred to the trust, there appears
to have been no meaningful change in the operation or control of
the pizza business. Petitioner continued as manager of the
business. The evidence suggests that the named trustees of the
trust (Orr and Crosby) were not independent and performed no
significant duties in connection with the pizza business. The
beneficiaries of the trust were members of petitioner's family.
At trial, other than a summary document entitled "Memorandum
of Trust", there was not admitted into evidence the original or a
copy of any signed trust document. Petitioner was the sole
witness who testified at trial, and his self-serving testimony
was not credible. None of the alleged trustees or other persons
involved in the annuity trust was called as a witness.
Petitioner has not satisfied his burden of proving that the
annuity trust did not constitute a sham trust. See Rule 142(a).
For Federal income tax purposes, the annuity trust is to be
treated as a sham, and petitioner is to be treated as taxable on
the proceeds received in 1994 and on the depreciation recapture
income relating to sale of the pizza business to Beagley and
Lundell.
In light of our holding on the above issue, we need not
address an alternative argument made by respondent that, under
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