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Peter Morrow testified at trial about the Morrows’ decision
to use a trust entity to operate their sole proprietorship:
Q Do you know why you chose a trust over
choosing an S corporation?
* * * * * * *
A * * * I don’t know how we came to that
conclusion, other than the fact that my main concern
was to have protection against lawsuits. You know, and
if I could get any tax benefits out of it, I left that
up to my tax people.
Petitioners’ argument that a trust had advantages over an
S corporation misses the point. The incorporation alternative is
not an issue here. Petitioners chose the form of a trust and are
responsible for the consequences of their decision. Those
consequences are not the same as corporate form. The U.S.
Supreme Court has observed repeatedly: “while a taxpayer is free
to organize his affairs as he chooses, nevertheless, once having
done so, he must accept the tax consequences of his choice,
whether contemplated or not, * * * and may not enjoy the benefit
of some other route he might have chosen to follow but did not.”
Commissioner v. Natl. Alfalfa Dehydrating & Milling Co., 417 U.S.
134, 149 (1974) (citations omitted).
On the totality of the evidence, giving more weight to the
objective facts than to petitioners’ unsupported statements of
subjective intent, we conclude that the primary purpose of the
Morrows in establishing the trust was to avoid employment tax.
The trust lacked independent economic substance. The Morrows
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