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B. The Parties’ Contentions
Respondent contends that the formation of the Rashi and
Rambam Trusts and the Melniks’ subsequent transfer of their
HouTex stock to Clend in exchange for private annuities lacked
economic substance. According to respondent, we should (1)
disregard the annuity transactions as sham transactions lacking
economic substance and treat the entire proceeds from the HouTex
merger as petitioners’ income or (2) recharacterize the private
annuity transactions as transfers in trust with retained income
interests.
Petitioners maintain that the trusts and Clend were not
shams and that the private annuity transactions had economic
substance. Petitioners bear the burden of proof. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).32
C. The Sufficiency of the Record in General
As the party with the burden of proof in this case,
petitioners bear the ultimate burden of persuasion; i.e., the
risk of nonpersuasion, as well as the initial burden of
production. See, e.g., Gerling Intl. Ins. Co. v. Commissioner,
86 T.C. 468, 476 n.5 (1986). In order to satisfy their initial
burden of production, petitioners were required to introduce
evidence sufficient, if believed, to demonstrate by a
32In the stipulation of facts, petitioners conceded that
sec. 7491(a) does not apply to shift the burden of proof to
respondent.
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