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not qualify as trade or business expenses. Further, the amounts
for repairs and maintenance do not qualify as trade or business
expenses, as petitioner incurred the expenses to improve his
father’s property.
Transactions among family members that result in the
distribution of income within a family unit “are subject to the
closest scrutiny.” Van Zandt v. Commissioner, 40 T.C. 824, 830
(1963), affd. 341 F.2d 440 (5th Cir. 1965); Coombs v.
Commissioner, T.C. Memo. 1984-366. A transaction that is entered
into solely for the purpose of tax reduction and that has no
economic or commercial objective to support it is a sham and
without effect for Federal income tax purposes. See Rice’s
Toyota World, Inc. v. Commissioner, 81 T.C. 184 (1983), affd. in
part and revd. in part 752 F.2d 89 (4th Cir. 1985).
Petitioner lacked a business purpose in making payments to
his parents. Rather, the three principal purposes in this
financial arrangement were to assist his parents financially,
permit his parents to claim the earned income credit, and reduce
his own tax burden.
Petitioner’s testimony indicates that a primary reason for
hiring his mother was to assist his parents:
THE COURT: So either the gross receipts are
underreported or the expenses are overreported. That’s
the reasonable man conclusion, and you’ve got some
burden here to show what it is, why I should accept
those numbers.
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