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of creditors or to serve the creator's personal or
undisclosed convenience, so long as that purpose is the
equivalent of business activity or is followed by the
carrying on of business by the corporation, the
corporation remains a separate taxable entity. * * *
[Fn. refs. omitted.]
On the other hand, if a corporation (or another legal entity such
as a trust or partnership) was not formed for a substantial
business purpose, and does not engage in actual business
activities, the corporate entity amounts to a sham that may be
disregarded for tax purposes. See Helvering v. Clifford, 309
U.S. 331 (1940); Gregory v. Helvering, 293 U.S. 465 (1935).
Avoiding taxation is not a legitimate business activity in the
normal course. Natl. Investors Corp. v. Hoey, 144 F.2d 466, 468
(2d Cir. 1944).
Even if a corporation is not a sham because it is engaged in
some legitimate business activity, payments to a corporation may
nevertheless be reallocated to another person or entity under the
assignment of income principles mentioned above. In a corporate
context, particularly in cases involving closely held personal
service corporations, the determination of the true earner of
income can be difficult. In Johnson v. Commissioner, 78 T.C.
882, 890-891 (1982), affd. without published opinion 734 F.2d 20
(9th Cir. 1984), a professional athlete who had conveyed the
exclusive rights to his personal services to a corporation
contended that the corporation, rather than he, was taxable on
amounts paid directly to it by his employer. Recognizing that a
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