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Under specified circumstances, the statutory grantor trust
provisions (secs. 671 through 679) treat the grantor of the trust
and, sometimes, a third party, as the substantial owner of all or
part of the trust. Trust income is taxed to the substantial
owner under the rules of section 671. Because the conditions
imposed by each of the grantor trust provisions are independent
of those imposed by the others, the grantor can avoid taxation
only if (1) he does not possess a disqualifying reversionary
interest (sec. 673), (2) the trust cannot be revoked by the
grantor or a nonadverse party (sec. 676), (3) trust income cannot
be distributed to the grantor or the grantor’s spouse or used to
pay for insurance on their lives without the consent of an
adverse party (sec. 677), (4) specified powers to control
beneficial enjoyment of the corpus or income are not vested in
the grantor or certain other persons (sec. 674), and (5) certain
administrative powers are not exercisable by the grantor or a
nonadverse party (sec. 675).
4. Analysis
a. Income
With respect to Complete Connections Trust, we have found
that petitioners carried on the same business activities both
before and after the trust reported income from such activities,
and we have found that petitioners exercised control over the
trust. Such facts are consistent with (1) respondent’s
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