Richard R. Pelham and Paula A. Pelham - Page 12




                                       - 12 -                                         
                         Like for instance, if I made, let’s say                      
               40,000 in a year, I only had to pay Social Security on                 
               that 8,000 that I paid myself.  But let’s say the other                
               balance of the 32,000, I had to pay income tax on, but                 
               not Social Security tax.  That was my understanding.                   
                         I guess what you’d say is for tax reasons.                   
               Based on Richard Pelham’s testimony and the totality of the            
          evidence, we conclude that the primary purpose of establishing              
          the trust was to avoid employment tax.  The trust lacked                    
          independent economic substance.  Richard Pelham was, in                     
          substance, the grantor of the trust.  Thus, the income and                  
          expenses from the operations of Lake Lock & Key during the years            
          in issue are attributable to the Pelhams and not to the trust.              
          The Pelhams are liable for self-employment taxes on the net                 
          income of Lake Lock & Key for the years in issue.                           
               To reflect the foregoing and concessions of the parties,               
                                                  Decisions will be entered           
                                             under Rule 155.                          




















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