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excess of the STL transfers to WPA’s bank account in 1996 and
1997 in the respective amounts of $21,774 and $8,277 also
constitute additional, unreported taxable income to petitioners.
We also disagree with petitioners’ claim that WPA was a
valid trust. Even if a trust were legally created under State
law, we are not required to respect it as a separate entity for
Federal tax purposes. Markosian v. Commissioner, 73 T.C. 1235,
1245 (1980). Whether a trust is a sham entity lacking in
economic substance is a question of fact. United States v.
Cumberland Pub. Serv. Co., 338 U.S. 451, 454 (1950); Paulson v.
Commissioner, 992 F.2d 789, 790 (8th Cir. 1993), affg. T.C. Memo.
1991-508. The record clearly demonstrates that WPA engaged in no
business or charitable activities during the relevant period.
Mr. Sowards generally used WPA only as a receptacle into which he
deposited income received from STL and out of which moneys flowed
for his personal use.
In deciding whether a purported trust lacks economic
substance, we consider the following factors: (1) Whether the
taxpayer's relationship, as grantor, to property purportedly
transferred into trust differed materially before and after the
trust's formation; (2) whether the trust had a bona fide
independent trustee; (3) whether an economic interest in the
trust passed to trust beneficiaries other than the grantor; and
(4) whether the taxpayer honored restrictions imposed by the
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