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Business Trust over Which Actual Grantor Retained Control Was a Sham (CIM Trust, TCM; Pelham, TCM)

Source: CCH

Trusts to which individuals transferred their businesses were determined to be shams that lacked economic substance. Although, in each case, trust documents listed the taxpayers' daughters as the settlors, the taxpayers were the actual grantors and their daughters were merely "straw men." The formation of the trusts did not alter the grantors' relationship to trust property since they made all of the trusts' decisions with little input from anyone else, controlled the earning of income, and dealt with the income as if it were their own.

In addition, there was no evidence in the record to indicate that the taxpayers transferred an economic interest to any other beneficiaries. Moreover, the trusts did not appear to serve any purpose other than tax avoidance. Accordingly, the structure of the trusts was disregarded for tax purposes and the taxpayers were taxable on the net income of the businesses and liable for self-employment taxes.