- 37 -
The record regarding the business purpose for the use of the
foreign entities is unsatisfying and unconvincing for the reasons
summarized above. The record is also unconvincing and not
credible because none of the witnesses ever admitted that tax
considerations played any role in their decision to use the
foreign entities. The tax savings that resulted from the use of
the foreign entities were considerable, yet none of the witnesses
acknowledged this reality when they attempted at trial to justify
the use of the foreign entities. The only acknowledgment offered
with respect to the tax consequences was in the form of testimony
by Mr. Pennoni, who stated that taxes would eventually be paid by
the Melniks when they received their respective annuity payments.
The record, however, raises substantial questions regarding
whether Clend will ever be in a position to pay the annuities in
question. Assets that should have been invested and managed to
ensure, to the fullest extent reasonably possible, that the
annuities would actually be paid, were instead made available to
the Melniks through loans and directed real estate investments
that, as of the date of trial, were either in default or in
litigation.38
38As of the trial date, the defaulted loans made to the
Melniks had not been treated by Clend as distributions to the
foreign trusts and by the trusts as distributions to the Melniks,
even though Bermuda Trust had warned the Melniks that the unpaid
loans might be treated as trust distributions.
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