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has economic substance is whether the trust had a bona fide
independent trustee. See Markosian v. Commissioner, supra at
1244. Petitioners contend that Howie Rossman, the drafter of the
CCJT documents, was an independent trustee who participated in
the daily operations of the jewelry business after the CCJT was
created. Petitioners also contend that Nelly and Steven10 acted
at different times as independent trustees of both trusts.
The declarations of trust provided that the trustees, by
majority vote, could supplement and amend the terms of the
declarations. The trustees were authorized to distribute trust
income and principal in their absolute discretion, determine
compensation for employees and themselves without any apparent
restriction, remove other trustees from office, or generally
perform almost any legal action with respect to the trusts.
During the years at issue, the Castros exercised effective
control over the trusts, either as the only trustees or as a
majority of the trustees of the two trusts. Howie Rossman was
not a trustee of either trust during the years at issue. The
record is lacking in credible evidence that either Nelly or
Steven functioned as an independent trustee, particularly since
the Castros could and did control significant trust decisions.
Nelly and Steven’s service as trustee was merely a formality that
10Petitioners do not expressly argue that Steven was an
independent trustee for purposes of meeting the second factor,
but because he replaced Nelly as trustee to the CFT when she
died, we assume petitioners intended this as part of their
argument.
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