Richard R. Pelham and Paula A. Pelham - Page 11




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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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