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On its tax returns for 1997 and 1998, Global Wellness
reported income generated by petitioners’ Nikken activity as
passive income, claimed expenses and losses, and distributed the
net income to Wealth Unlimited. Global Wellness deducted the
distributions in the amounts reported as distributed to Wealth
Unlimited. Global Wellness reported total income of $361,154 for
1997 and $705,616 for 1998 and zero tax for 1997 and 1998.
On its income tax returns for 1997 and 1998, Wealth
Unlimited reported the Global Wellness distributions as passive
income. Wealth Unlimited reported on its 1998 trust income tax
return that it had distributed the amounts it had received from
Global Wellness to Nick Rogers, Tude Tide, and V & S Trust.
Wealth Unlimited reported a loss of $66,887 for 1997 and income
of $216,975 for 1998 and zero tax for 1997 and 1998.
Petitioners reported on their Forms 1040 adjusted gross
income of $142,343 in 1995, $97,081 in 1996, $9,546 in 1997, and
$17,628 in 1998. Petitioners’ standard of living did not change
when they began using trusts even though their adjusted income
dropped precipitously.3 Petitioners did not offer any authority
for recognizing their trusts for tax purposes or disclose their
trusts on their individual returns for 1997 and 1998.
3 Mrs. Rogers testified that petitioners’ “style of life”,
which we take to mean standard of living, did not change when
petitioners began using trusts.
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