James D. and Rita K. Snyder - Page 20




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          continued to treat it as if they owned it, as evidenced by their            
          use of the residence to secure an indebtedness of theirs after              
          their purported transfer of it to the trust.  Petitioners                   
          exercised control over J&R Trust, as evidenced by their                     
          signatures, as fiduciary, on the J&R Trust returns and their                
          authority to write checks on the J&R checking account.                      
          Petitioners distributed the income of J&R Trust to themselves and           
          used the J&R Trust account to pay their personal expenses, as               
          evidenced by checks drawn, for instance, to Robert C. Miller,               
          D.D.S., New Covenant Church of God, K Mart, Steven J. Harmon,               
          M.D., Central Coast Pathology, Payless Shoes, Musician’s                    
          Emporium, Bakery Works, and Bauer Speck Student Council.                    
                    2.  Fundamental Principles                                        
               A fundamental principle of tax law is that income is taxed             
          to the person who earns it.  See Commissioner v. Culbertson, 337            
          U.S. 733, 739-740 (1949); Lucas v. Earl, 281 U.S. 111 (1930).               
          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                 






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