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Petitioner conducted his hauling business both individually and
as president and sole shareholder of Pyramid Commodities, Inc.
(Pyramid), an S corporation incorporated in California and
licensed by the California Public Utilities Commission (PUC) to
haul cement, rock, and sand in Southern California. Petitioner’s
retail gasoline business was organized as a sole proprietorship
and operated under the name Sherrys Exxon. Petitioner’s
residential real estate and equipment rental activities also were
unincorporated businesses. Petitioner used the cash receipts and
disbursements method of accounting to compute taxable income for
all these activities.
In December 1986, petitioner created the Lee G. Gale Living
Trust (living trust) as part of his estate plan. Petitioner’s
primary purpose in creating the living trust was to avoid or
minimize probate costs. Petitioner had exclusive power to revoke
or amend the living trust during his lifetime. The living trust
instrument designated petitioner as the initial trustee, to be
succeeded by Bruce J. Lurie and/or Ronald Foster if petitioner
became unable or unwilling to serve. Petitioner purported to
fund the living trust by contemporaneously executing a document
entitled “Assignment of Assets to Living Trust” (assignment
document). In the assignment document, petitioner declared that
he assigned to the living trust, without consideration, all the
right, title, and interest that he owned or would thereafter
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