Carson v. Commissioner

92 T.C. 1134 (1989)

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Carson v. Commissioner

United States Tax Court
92 T.C. 1134 (1989)

Facts

John M. Carson (plaintiff), a dentist, jointly owned his dental practice with his wife, Jean Carson (plaintiff). In 1981, the Carsons transferred property from the dental practice to themselves as trustees of a trust, and then the dental practice leased the property from the trust. As trustee, Jean received the lease payments and deposited them in the trust’s checking account. The trust required that the trust’s income be paid, at least annually, to the beneficiaries of the trust, who were the Carsons’ two sons, Jon and Derrick. The trust did not say that distributions to the beneficiaries had to be equal. In 1982, 1983, and 1984, as trustee, Jean made payments to the beneficiaries from the trust. In 1982, the payments were roughly equal. In 1983, $6,640 was paid to Derrick and $9,065 was paid to Jon. In 1984, $9,370 was paid to Derrick and $4,564 was paid to Jon. Although the Carsons reported the trust income for those three years on their fiduciary income tax returns, they did not report any of the trust income on their personal joint income tax return. The Internal Revenue Service (IRS) (defendant) found that the Carsons were deficient on their personal income taxes. The IRS asserted that under § 674(a) of the Internal Revenue Code, the Carsons should have treated the trust income as their own personal income because they had the power to alter the beneficial interests of the beneficiaries. The Carsons petitioned the United States Tax Court for a redetermination of their taxes due.

Rule of Law

Issue

Holding and Reasoning (Nims, C.J.)

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