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respondent with respect to the adjustments related to the income
tax deficiencies and concomitant unreported income at issue here.
The burden of showing error in these determinations by respondent
remains with petitioners.11
B. Economic Substance of the Trusts
Respondent’s principal basis for concluding that petitioners
are liable for deficiencies was that HGAMC and HGRCT were sham
entities with no economic substance and, consequently, should be
disregarded for Federal tax purposes. As a result, all income
earned and allowable expenses incurred under the names of HGAMC
and HGRCT would be reported on petitioners’ personal income tax
returns. Petitioners dispute these sham characterizations. They
argue that HGAMC was a legitimate business trust under the laws
of Ohio created to operate the new business of selling and
servicing Aegis trusts. It is likewise their position that HGRCT
was a proper nonexempt charitable trust treated as a private
foundation under section 4947(a)(1).
The overarching principles that guide analysis of trust
legitimacy are of long provenance. As summarized by this Court
in oft-cited language:
It is well established that a taxpayer has the
legal right to minimize his taxes or avoid them totally
11 The parties’ respective burdens as to issues concerning
penalties, the statute of limitations, and spousal relief, will
be discussed infra in connection with the Court’s analysis of
those matters.
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