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Recently, in Barmes v. Commissioner, T.C. Memo. 2001-155, we
applied assignment of income principles to tax the income of a
business to a taxpayer who had attempted an anticipatory
assignment of that income to a trust. We had this to say:
Attempts to subvert * * * [the fundamental principle
that income is taxed to the person who earns it] by
diverting income away from its true earner to another
entity by means of contractual arrangements, however
cleverly drafted, are not recognized as dispositive for
Federal income tax purposes, regardless of whether such
arrangements are otherwise valid under State law. See
Vercio v. Commissioner, 73 T.C. 1246, 1253 (1980); see
also Schulz v. Commissioner, 686 F.2d 490, 493 (7th
Cir. 1982), affg. T.C. Memo. 1980-568. The "true
earner" of income is the person or entity who
controlled the earning of such income, rather than the
person or entity who received the income. See Vercio
v. Commissioner, supra at 1253 (citing Wesenberg v.
Commissioner, 69 T.C. 1005, 1010 (1978)); see also
Commissioner v. Sunnen, 333 U.S. at 604 ("The crucial
question remains whether the assignor retains
sufficient power and control over the assigned property
or over receipt of the income to make it reasonable to
treat him as the recipient of the income for tax
purposes."). [Id.]
Pursuant to a second fundamental principle, we may ignore a
transfer in trust as a sham where the transfer has not, in fact,
altered any cognizable economic relationship between the putative
transferor and the trust property. See, e.g., Zmuda v.
Commissioner, 79 T.C. 714, 719-722 (1982), affd. 731 F.2d 1417
(9th Cir. 1984). Recently, in Muhich v. Commissioner, T.C. Memo.
1999-192, affd. 238 F.3d 860 (7th Cir. 2001), we listed the
following factors to be considered in determining whether a trust
lacks economic substance for tax purposes:
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