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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).
Richard Pelham testified at trial about his decision to use
a trust entity to operate his sole proprietorship:
Q And how was it decided that you wanted to
start operating Lake Lock & Key through the trust?
A Just for the retirement reason.
Q Which retirement reason are we talking about?
A About saving that money for ten years, and
letting it build up. And the life insurance policy.
Otherwise, I’m–-maybe tax reasons, I guess. Because I
was–-I just turned–-I went on Social Security, and I
was allowed to make like $8,000 a month.
That’s what I understood. That I wouldn’t
have to pay, like–-I’d have to pay taxes on income from
the business, but not Social Security after $8,000.
* * * * * * *
Q Mr. Pelham, if everything stayed the same,
what was the purpose of forming the trust?
A My retirement money that I had to invest
every month. And to my knowledge, not–-just being a
layman on the tax part, only paying tax on the income,
and not Social Security.
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Last modified: May 25, 2011