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any cognizable economic relationships, we must look beyond the
form of the transaction and apply the tax law according to the
transaction’s substance. See Markosian v. Commissioner, 73 T.C.
1235, 1241 (1980). This principle applies regardless of whether
the transaction creates an entity with separate existence under
State law. Zmuda v. Commissioner, supra at 720.
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
trust or by the law of trusts. Markosian v. Commissioner, supra
at 1243-1244; Norton v. Commissioner, T.C. Memo. 2002-137; Castro
v. Commissioner, T.C. Memo. 2001-115; Buckmaster v. Commissioner,
T.C. Memo. 1997-236; Hanson v. Commissioner, T.C. Memo. 1981-675,
affd. per curiam 696 F.2d 1232 (9th Cir. 1983).
A. The Gouveias’ Relationship to the Trusts’ Property
The first factor we consider in deciding whether a trust has
economic substance is whether a taxpayer’s relationship, as
grantor, to the property transferred into trust differed
materially before and after the trust’s formation. Markosian v.
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