Steve M. and Khristine Norton, et al. - Page 13




                                       - 13 -                                         
                                       OPINION                                        
          I.   Is Income Reported by the South Denali Lands Trust and                 
               Denali Company Trust Includable in the Gross Income of Mr.             
               and Mrs. Norton?                                                       
               Petitioners have the burden of proving that they are not               
          liable for the deficiencies determined by respondent.  Rule                 
          142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).6                      
               Petitioners argue that the trust documents provide a                   
          sufficient description of the trust and the trustees’ duties, and           
          they are, therefore, legally enforceable because the form cannot            
          be ignored.  Petitioners contend that Mr. and Mrs. Norton had an            
          established business purpose for altering the form of SNE from a            
          sole proprietorship to a trust in order to protect their assets             
          from a decline in the economy.  Additionally, petitioners argue             
          that the trusts pass the economic substance test because, in                
          petitioners’ view, the trusts have an independent trustee; Mr.              
          Norton’s relationship to the property differed materially after             
          trust formation; an economic interest passed to the                         
          beneficiaries; and Mr. and Mrs. Norton honored the restrictions             
          imposed by the trusts.                                                      




               6  Cf. sec. 7491 is effective for court proceedings arising            
          in connection with examinations commencing after July 22, 1998.             
          Respondent contends that sec. 7491 is inapplicable because the              
          examinations commenced before July 22, 1998.  Petitioners do not            
          contend that their examinations began after this date or that               
          sec. 7491 is applicable to their case.                                      





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