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received from time-to-time, but the trust does not allow Mr. and
Mrs. Norton and Mr. Owens to have any control over when their
money would be returned during the term. The trust provides no
assurance as to when the money will be received except at the end
of the term of the trust of 20 years.
During the tax years at issue, SNE had gross sales of over
$1 million each year. SNE did not report any amounts, and no tax
was paid on its profit because it was reported by the Denali
Company Trust.
On its 1994 return received on January 4, 1996, the Denali
Company Trust reported an adjusted gross income of $210,314. The
same amount was deducted as an income distribution to Crystal
Diversified; therefore, the Denali Company Trust reported zero
taxable income.5 In the notice of deficiency, respondent
disallowed certain business expense deductions and the income
distribution deduction because the trust failed to substantiate
the deductions. Additionally, respondent imposed an addition to
tax under section 6651(a)(1) for failure to file and an accuracy-
related penalty under section 6662(a).
5 A promissory note was issued from the Denali Company
Trust to Michael Andr�, as trustee of Crystal Diversified, for
$210,014 on Feb. 18, 1995, because Denali Company Trust did not
have cash in its account to pay the amount allegedly due to
Crystal Diversified. Payments were made on this note starting on
Feb. 27, 1996, when cash became available.
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