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We first decide whether JJH should be disregarded for tax
purposes. According to respondent, it should because it lacked
economic substance and is a sham. We agree. The burden of proof
is split in this case. Petitioner has the burden of proof as to
the $77,550 in unreported income respondent determined in the
notice of deficiency. See Rule 142(a). Respondent has the
burden of proof as to the $4,328 increase in unreported income6
and as to fraud. See Rule 142(a) and (b).
There is no dispute that JJH was properly organized under
Illinois law. However, even though a corporation is organized
under the laws of a State, we may disregard it for Federal tax
purposes if it is no more than a vehicle for tax avoidance and
void of a legitimate business purpose. See Gregory v. Helvering,
293 U.S. 465 (1935); American Sav. Bank v. Commissioner, 56 T.C.
828, 838 (1971); Aldon Homes, Inc. v. Commissioner, 33 T.C. 582
(1959). While a taxpayer is free to adopt the corporate form of
doing business, a corporation must engage in some meaningful
business activity to be recognized as a separate entity for tax
purposes. See Moline Properties, Inc. v. Commissioner, 319 U.S.
436 (1943); Achiro v. Commissioner, 77 T.C. 881 (1981). Avoiding
taxation is not a business activity. See National Carbide Corp.
6On brief, respondent maintains that petitioner’s unreported
income was $81,879, leaving respondent with the burden of proof
on $4,328, the excess over the $77,550 determined in the notice
of deficiency.
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