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items of income and deduction reported by petitioners in that
return. Consequently, respondent relied on the indirect method
of reconstructing petitioners’ 1995 Schedule C gross receipts
described above. See, e.g., supra note 34. We have found that
method and the results generated by that method to be reasonable.
The only question that remains for our consideration is whether
the unreported Schedule C gross receipts determined by respondent
in the notice are taxable to petitioners. On the record before
us, we find that they are.
As discussed above, respondent advances three alternative
theories or principles in support of respondent’s determination
that petitioners had unreported Schedule C gross receipts for
1995: (1) The assignment of income theory; (2) sham trust
principles; and (3) the grantor trust rules. We shall address
only the assignment of income theory because that theory resolves
against petitioners the issue of whether they are taxable on the
unreported Schedule C gross receipts that respondent determined
in the notice.
As we understand their position regarding the unreported
Schedule C gross receipts at issue, petitioners contend that the
income which Barbara’s Gift Shop and Barmes Wholesale generated
after Sandbar Wholesale Trust was created on October 12, 1995, is
income that Sandbar Wholesale Trust earned, and not income that
petitioners earned. That is because, according to petitioners,
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