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465, 469 (1935). However, transactions that have no significant
purpose other than to avoid tax and that do not reflect economic
reality will not be recognized for Federal income tax purposes.
Zmuda v. Commissioner, 79 T.C. 714, 719 (1982), affd. 731 F.2d
1417 (9th Cir. 1984); Markosian v. Comissioner, 73 T.C. 1235,
1245 (1980); see also Furman v. Commissioner, 45 T.C. 360, 364-
366 (1966), affd. 381 F.2d 22 (5th Cir. 1967). Where the form of
a transaction has not altered any cognizable economic
relationships, we look through the form of the transaction and
apply the tax law according to the transaction’s substance.
Markosian v. Commissioner, supra at 1241. This principle applies
regardless of whether the transaction creates an entity with
separate existence under State law. Zmuda v. Commissioner, supra
at 720; see also Furman v. Commissioner, supra at 364.
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.
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