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This principle applies regardless of whether the transaction
creates an entity with separate existence under State law. Zmuda
v. Commissioner, 79 T.C. at 720.
Petitioners argue that they did not create the OMK trust to
avoid taxes. We find the testimony of Mr. Kooyers was sincere
and credible. He testified that he and Mrs. Kooyers established
the trusts to provide for the continued funding of the missionary
activities of P.I. Ministries and for the education of their
grandchildren. Although we are convinced that petitioners
intended to support the missionary activities of P.I.
Ministries,10 the record does not establish that any beneficial
interest passed to P.I. Ministries. The named beneficiaries of
the OMK trusts are petitioners’ children and the OMK Charitable
Trust. Documents related to the OMK Charitable Trust are not in
the record, however, and the beneficiaries of the OMK Charitable
Trust are not identified in the record.
Courts will disregard a transaction when the transaction has
no economic effects other than the creation of tax benefits.
10The Department of Justice (DOJ) began a campaign to stop
the spread of phony trust schemes that the Government contends
are being used illegally to evade the payment of taxes. In a
lawsuit the DOJ filed, the Government obtained a permanent
injunction against Roderick Prescott, a former promoter of NTS,
barring him from selling trust schemes that falsely claimed an
individual’s personal expenses could be paid through a trust to
obtain tax benefits not available to the individual. United
States v. Prescott, Civil No. 02-CV-0692-L (S.D. Cal., June 2,
2003).
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