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During an October 2004 meeting, petitioner finally provided
records to Agent Davis. The Court concludes that petitioner’s
tardy actions in providing records to Agent Davis were an attempt
to forestall further investigation and substantiate his
deductions on his late-filed returns. Petitioner’s pattern of
noncompliance is indicative of a fraudulent failure to file for
the taxable years in issue.
7. Engaging in Illegal Activities or Attempting to
Conceal Illegal Activities
Petitioner established DSG as a trust that purported to act
as his business entity. He disclosed the trust’s income and
expenses for the first time on Forms 1040 submitted woefully
late, after a notice of deficiency for the years in issue had
already been received. The Court may infer fraudulent conduct
based on petitioner’s activities involving trusts. See Muhich v.
Commissioner, T.C. Memo. 1999-192 (holding that trusts designed
to avoid Federal income tax were sham trusts), affd. 238 F.3d 860
(7th Cir. 2001).
Taxpayers are generally allowed to arrange and conduct their
affairs and structure their transactions to minimize any adverse
tax implications. See Gregory v. Helvering, 293 U.S. 465, 469
(1935); Markosian v. Commissioner, 73 T.C. 1235, 1241 (1980).
However, where a sham transaction has no economic effect other
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