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1. Whether Petitioners’ Trusts Are Recognized for Federal
Tax Purposes
Respondent contends that petitioners’ trusts should not be
recognized for Federal income tax purposes because they are
shams. Petitioners contend that petitioners’ trusts are not
shams. A trust may be a sham for Federal tax purposes if the
grantor retains control over the property or income placed in the
trust and does not change how the property or income is treated.
Commissioner v. Sunnen, 333 U.S. 591, 604 (1948); United States
v. Noske, 117 F.3d 1053, 1059 (8th Cir. 1997). We generally do
not recognize a trust for Federal tax purposes if the grantor
keeps substantially unfettered powers of disposition or
beneficial enjoyment of trust property. See United States v.
Noske, supra; Paulson v. Commissioner, 992 F.2d 789, 790 (8th
Cir. 1993), affg. per curiam T.C. Memo. 1991-508; United States
v. Buttorff, 761 F.2d 1056, 1061 (5th Cir. 1985); Schulz v.
Commissioner, 686 F.2d 490, 495 (7th Cir. 1982), affg. T.C. Memo.
1980-568; Vnuk v. Commissioner, 621 F.2d 1318, 1320-1321 (8th
Cir. 1980), affg. T.C. Memo. 1979-164.
Petitioners controlled and dealt with the alleged trust
property as if it were their own. Petitioner retained
substantial enjoyment of the trust property as shown by the fact
that he had signature authority over the bank accounts of
petitioners’ trusts in 1996 and for part of 1997, and that he
paid his personal expenses from those bank accounts in 1997.
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