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receipt of income than necessary to tax to them such income.
They also have failed to prove that Complete Connections Trust
should not be disregarded as a sham, since the transfer in trust
lacked economic substance. See discussion of relevant factors,
section II.B.2. supra, as set forth in Muhich v. Commissioner,
supra. Finally, petitioners have failed to prove that one or
both of them should not be treated as the owner of all or a
portion of Complete Connections Trust on account of application
of one or more of the grantor trust rules found in sections 673
through 676.
With respect to J&R Trust, we have less information with
respect to its business or income producing activities (we know
it obtained title to the residence (petitioners’ home) and paid
their personal expenses). Nevertheless, we are confident that
petitioners must take into account the trust’s income attributed
to them by respondent since, for similar reasons as with respect
to Complete Connections Trust, petitioners have failed to prove
that the trust should not be disregarded as a sham or is not a
grantor trust.
b. Deductions
In the case of both trusts, respondent has attributed to
petitioners substantial amounts of gross receipts from business
without allowing them various offsetting business deductions (and
costs) claimed by the trusts. In the notice, respondent explains
that petitioners have failed to show their entitlement to such
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