Lou Deserio - Page 3

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          documents.  When petitioner did agree to meet with respondent,              
          petitioner did not effectively engage in meaningful preparation             
          of his case for trial as required by this Court’s Rules and                 
          pretrial order.  Respondent points out that, in general,                    
          petitioner was uncooperative and failed to comply with the letter           
          or the spirit of this Court’s Rules or its pretrial order.                  
               Petitioner assigned his income-generating activities to                
          trusts or other entities by means of transactions that respondent           
          determined lacked economic substance.2  The notices of                      
          deficiency, among other adjustments and explanations, contain the           
          following explanatory paragraphs concerning petitioner’s business           
          income and his relationship to the trusts:                                  
               Since the trust arrangement is a sham with no economic                 
               substance, it is disregarded for tax purposes.  Your                   
               business income is increased by the gross receipts of                  
               the Photo Art Marketing enterprises Trust and Photo Art                
               Publishing Trust and decreased by the ordinary and                     
               necessary expenses of carrying on those business[es].                  
               * * *                                                                  
               Alternatively, your business income is increased                       
               because the Photo Art Marketing enterprise Trust and                   
               the Photo Art Publishing Trust are grantor trusts whose                
               incomes are taxable to you individually.  * * *                        
                    *      *      *      *      *      *      *                       

               2 Petitioner has chosen to attack the Commissioner’s and               
          this Court’s jurisdiction to delve into his relationship with his           
          trust and has adduced no evidence to show that the substance of             
          the Government’s determination is in error.  Petitioner admits,             
          in response to respondent’s request for admissions, that he                 
          transferred his business to the trust(s).                                   

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