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be taxed to the one who earns it. Commissioner v. Culbertson,
337 U.S. 733, 739-740 (1949) (citing Lucas v. Earl, supra).
Attempts to subvert this principle by diverting income away from
its true earner to another entity by means of contractual ar-
rangements, however cleverly drafted, are not recognized as
dispositive for Federal income tax purposes, regardless of
whether such arrangements are otherwise valid under State law.
See Vercio v. Commissioner, 73 T.C. 1246, 1253 (1980); see also
Schulz v. Commissioner, 686 F.2d 490, 493 (7th Cir. 1982), affg.
T.C. Memo. 1980-568. The “true earner” of income is the person
or entity who controlled the earning of such income, rather than
the person or entity who received the income. See Vercio v.
Commissioner, supra at 1253 (citing Wesenberg v. Commissioner, 69
T.C. 1005, 1010 (1978)); see also Commissioner v. Sunnen, 333
U.S. at 604 (“The crucial question remains whether the assignor
retains sufficient power and control over the assigned property
or over receipt of the income to make it reasonable to treat him
as the recipient of the income for tax purposes.”).
Even if, as petitioners contend, they transferred Barbara’s
Gift Shop and Barmes Wholesale and/or the properties of those
businesses to Sandbar Wholesale Trust after it was created, based
on our examination of the entire record before us, we find that
petitioners’ attempt to divert the income of those two businesses
to Sandbar Wholesale Trust constituted an invalid assignment of
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