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In the answer, respondent denies:
that said trusts were “valid” to the extent that
petitioners intend the term to imply that the trusts
should be recognized for federal income tax purposes;
or alternatively, to imply that the trusts are not
grantor trusts; or alternatively, to imply that the
income reported by the trusts is not taxable to
petitioners under assignment of income principles.
On brief, respondent states the following grounds for
attributing gross receipts of Alexion Trust to the J. Shirleys:
“on the grounds that Alexion Trust is a sham, or that Alexion
Trust is a grantor trust, or that the income of Alexion Trust is
taxable to Joseph and Frances Shirley under assignment of income
principles.” As to the depreciation deduction, respondent states
the issue to be whether the J. Shirleys are entitled to the
depreciation expense passed through to them from the Caralan
Trust.
Apparently, at the time the notice was issued to the
J. Shirleys, they and respondent understood respondent’s grounds
for making the two adjustments in question; both parties filed
pleadings and briefs which responded to those adjustments. Rule
142(a) provides that respondent bears the burden of proof with
respect to new matters. The J. Shirleys have not claimed that
respondent has raised any new matter. We therefore assume that
respondent’s grounds for making the two adjustments are the
grounds articulated by respondent on brief and that they raise no
new matter. The J. Shirleys bear the burden of proof. See Rule
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