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Oak Hill, and because petitioners are taxable on the trust income
under the grantor trust rules in sections 671 through 678.
OPINION
If the creation of a trust has no real economic effect and
alters no cognizable economic relationships, it will be
disregarded for Federal income tax purposes; our guidepost is the
economic substance of the transaction. See Zmuda v.
Commissioner, 79 T.C. 714, 719 (1982), affd. 731 F.2d 1417 (9th
Cir. 1984); Markosian v. Commissioner, 73 T.C. 1235, 1241 (1980).
This rule applies even if the trust is recognized pursuant to
State law as a business trust or other form of jural entity. See
Zmuda v. Commissioner, supra.8
Whether a trust lacks economic substance is a question of
fact. See Paulson v. Commissioner, 992 F.2d 789, 790 (8th Cir.
1993), affg. per curiam T.C. Memo. 1991-508. Relevant factors
include whether the taxpayer’s relationship as grantor to the
property differed materially before and after the trust’s
8 This is not the first occasion we have had to examine
trust arrangements devised and promoted by the Noskes. On each
occasion, we determined that they were sham entities used by
taxpayers to avoid income tax. See, e.g., Scherping v.
Commissioner, T.C. Memo. 1998-288; Paulson v. Commissioner, T.C.
Memo. 1991-643, affd. without published opinion 994 F.2d 843 (8th
Cir. 1993); Paulson v. Commissioner, T.C. Memo. 1991-508, affd.
992 F.2d 789 (8th Cir. 1993); Scherping v. Commissioner, T.C.
Memo. 1991-384; Chase v. Commissioner, T.C. Memo. 1990-615; Chase
v. Commissioner, T.C. Memo. 1990-164, affd. 926 F.2d 737 (8th
Cir. 1991); Scherping v. Commissioner, T.C. Memo. 1989-678.
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