Kevin D. Castro and Margarita C. Castro, et al. - Page 17




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          the transaction creates an entity with separate existence under             
          State law.  See Zmuda v. Commissioner, supra at 720.                        
               We have decided several cases involving multitiered trust              
          arrangements where the Commissioner alleged that the trust                  
          structure lacked economic substance and, therefore, had to be               
          disregarded for Federal income tax purposes.  See, e.g., Muhich             
          v. Commissioner, T.C. Memo. 1999-192, affd. 238 F.3d 860 (7th               
          Cir. 2001); Dahlstrom v. Commissioner, T.C. Memo. 1991-264, affd.           
          without published opinion 999 F.2d 1579 (5th Cir. 1993); Clawson            
          v. Commissioner, T.C. Memo. 1982-321.  In deciding whether a                
          purported trust lacks economic substance, we consider the                   
          following factors:  (1) Whether the taxpayer’s relationship, as             
          grantor, to property purportedly transferred into trust differed            
          materially before and after the trust’s formation; (2) whether              
          the trust had a bona fide independent trustee; (3) whether an               
          economic interest in the trust passed to trust beneficiaries                
          other than the grantor; and (4) whether the taxpayer honored                
          restrictions imposed by the trust or by the law of trusts.  See             
          Markosian v. Commissioner, supra at 1243-1245.                              
               A.  The Castros’ Relationship to the Trusts’ Property                  
               The first factor we consider is whether petitioner’s                   
          relationship, as grantor, to property ostensibly transferred into           
          trust differed materially before and after the trusts’ formation.           
          See id. at 1243.                                                            
               The Castros lived in the same home with the same furnishings           
          as they had before their home and furnishings were transferred              





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