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1. Whether the trusts petitioners used during 1997 and 1998
should be disregarded for Federal income tax purposes because the
trusts were shams. We hold they should.
2. Whether petitioners are liable for the accuracy-related
penalties under section 6662(a). We hold they are.
Unless otherwise noted, section references are to the
applicable versions of the Internal Revenue Code. Rule
references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some facts were stipulated and are so found. The stipulated
facts and the exhibits submitted therewith are incorporated
herein by this reference. Petitioners resided in Fair Oaks,
California, when they petitioned the Court. They filed 1997 and
1998 Federal income tax returns on October 15, 1998, and on July
28, 1999, respectively. They did not report on those tax returns
Social Security benefits, income from self-employment, and income
received by the JREP Trust, PERJ Trust, and CSM Business Trust
(collectively referred to as trusts1).
Petitioners established the trusts on January 1, 1992.
Petitioners were the initial trustees of CSM Business Trust (CSM
Trust), and Mr. Nichols was an initial trustee of PERJ Trust and
1 We use the words “trust” and “trustee” in our findings of
fact for narrative convenience. We do not intend our use of
those terms to indicate any conclusion about the substance of the
transactions at issue.
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