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purported transfer of the business to a trust. As respondent
summarizes his argument: “There is no reason why the payment of
rent suddenly became necessary upon the purported transfer of the
business to a trust, when nothing else changed, and payment of
rent was not previously necessary.”
Respondent’s argument focuses on the transfer of the floor
installation business to Floors Trust and overlooks the transfer
of Harlan’s residence to Harwood Group. Respondent’s brief does
not address the latter transfer at all.
Nonetheless, even if one assumes that Harwood Group is a
valid trust to which a valid transfer of Harlan’s residence was
made, petitioners have not shown entitlement to the claimed
deductions for rent.
We note first that petitioners have not shown that the
burden of proof with respect to this issue has shifted to
respondent pursuant to section 7491(a). As discussed more fully
below, the deductibility of rent for the use of property that has
been transferred to a trust and then leased back by the trust’s
grantor depends, inter alia, upon the reasonableness of the rent
and the independence of the trustee in negotiating it. The
evidence offered by petitioners with respect to the foregoing
factors consisted of Harlan’s testimony, wherein he stated that
the monthly rent paid to Harwood Group (for the office and garage
space at Harlan’s residence) was initially set at $800 but
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