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1998, by reason of Arivada’s failure to file a timely list of
creditors in the proper format and failure to file timely the
schedules and statements required by the bankruptcy rules.
The notice of deficiency sent to petitioner, after a
detailed explanation, concluded in part:
In this case, the business operation was not
altered by the formation of trust; and subsequently, a
limited liability partnership with the trust as
partner. Before, the business was operated as a sole
proprietor; after, the individual was a partner with a
minimal interest. The majority of the distributions
were allocated to the trust partner, who then
“distributed” income to two foreign beneficiaries.
The taxpayer has failed to substantiate that a
valid trust was created. In any event, the trust and
partnership arrangement should be disregarded for
Federal Income Tax purposes because it lacks economic
substance. As a result, the income and expenses for
the partnership are attributable to the individual
partner.
As the partner, Arivada, has been determined to be
established primarily for tax avoidance and determined
to be a sham, the income will be distributed 100% to
partner, George. However, to protect the interest of
the government, an inconsistent position will be taken
and income distributed 100% to partner, Arivada, also.
Due to the filing of the bankruptcy, all
adjustments will become nonpartnership items, and
adjustments made with non-TEFRA [Tax Equity & Fiscal
Responsibility Act of 1982, Pub. L. 97-248, 96 Stat.
324 (TEFRA)] procedures.
The statutory notice included explanations of the penalties and
other adjustments that have now been conceded by respondent or
not contested by petitioner.
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Last modified: May 25, 2011