- 7 - transaction and of reporting for tax purposes was done by the Morrows’ tax preparer. OPINION Respondent’s position is that the trust lacks economic substance and should be disregarded for Federal income tax purposes. Respondent maintains that the Morrows created a mere paper entity, the trust, and transferred the business operations of their sole proprietorship, I.D.F. Pest Control Co., to the trust for the purpose of avoiding self-employment tax under section 1402. Petitioners argue that the trust should be treated as a separate entity because: (1) The trust is a valid trust under State law; (2) a business may lawfully change from one form of entity to another, provided that the legal requirements are met; and (3) the trustee of the trust may operate a sole proprietorship business within the trust entity. Petitioners claim that the income and expenses of I.D.F. Pest Control Co. were properly reported for Federal income tax purposes, because the net income from the trust was reported as an income distribution on a Schedule K-1 to Charlotte Morrow and accordingly was reflected on the Morrows’ Schedule E of their jointly filed Federal individual income tax return. Taxpayers are entitled to structure their transactions to minimize their tax obligations. Gregory v. Helvering, 293 U.S.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011