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reduced to $500 when “I found that Harwood Group did not need
that kind of an income”. This evidence, while credible, is an
insufficient basis for a decision on this issue in petitioners’
favor. Indeed, it tends to show the opposite; namely, that the
rent was set arbitrarily and that decisions thereon were made by
Harlan rather than an independent trustee. Accordingly, the
burden of proof has not shifted to respondent with respect to the
disallowed rent deductions.
As noted, where property has been transferred to a trust and
then leased back by the trust’s grantor, the rent is deductible
under section 162(a) upon a showing that, inter alia, the rent is
reasonable in amount and the trustee has acted independently.
See May v. Commissioner, 76 T.C. 7 (1981), affd. 723 F.2d 1434
(9th Cir. 1984). The Court of Appeals for the Ninth Circuit, to
which an appeal in this case would normally lie, has placed
particular emphasis on the independence of the trustee. See
Brooke v. United States, 468 F.2d 1155, 1157 (9th Cir. 1972)
(“Many decisions pivot on the issue of the independence of the
trustee.”). Whether the trustee has acted independently is a
question of fact, involving the consideration of such criteria as
the trustee’s securing appraisals, requiring timely payment,
exercising prudent business judgment, and evidencing awareness of
his or her fiduciary obligations. Lerner v. Commissioner, 71
T.C. 290 (1978).
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