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On their 1994 return received on January 3, 1996, Mr. and
Mrs. Norton did not report any income from the Denali Company
Trust. In the notice of deficiency, in addition to the
imposition of an addition to tax under section 6651(a) and an
accuracy-related penalty under section 6662(a), respondent
increased their self-employment income by the net business income
of Denali Company Trust. Respondent determined that,
alternatively: (1) The Denali Company trust is a sham with no
economic substance; (2) the Denali Company Trust is a grantor
trust; and (3) Mr. and Mrs. Norton’s attempted assignment of
income to the Denali Company Trust is not recognized for tax
purposes.
On its 1995 return received on September 23, 1996, Denali
Company Trust reported an adjusted gross income of $116,752. It
deducted the same amount, of which $116,452 was treated as an
income distribution. As a result, it did not report any taxable
income in 1995.
On its 1996 return, Denali Company Trust reported an
adjusted gross income of $171,329. It deducted the same amount,
of which $171,029 was treated as an income distribution. As a
result, it did not report any taxable income in 1996.
In the notice of deficiency for 1995 and 1996, respondent
disallowed business expense deductions for depreciation, legal
and professional fees, and seminars, because respondent
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Last modified: May 25, 2011