Edward L. Stephenson Trust v. Commissioner
United States Tax Court
81 T.C. 283 (1983)

- Written by Joe Cox, JD
Facts
In 1972, Edward L. Stephenson created two trusts. The Stephenson Simple Trust was funded with 5,000 shares of Procter & Gamble common stock. The Simple Trust was required to distribute all of its income, with some mandatory and discretionary income distributions to Edward’s daughter, Amy Stephenson, and another person. Income not distributed to Amy and the other individual was instead distributed to the Stephenson Accumulation Trust. The Accumulation Trust income could be distributed to Amy or added to the trust corpus. Although Amy could demand part of the Simple Trust’s corpus, Amy had no such rights regarding the Accumulation Trust. The trustees of the two trusts (plaintiff) filed separate income tax returns for the two trusts in 1974 and 1975. The government (defendant) determined that the separate identity of the accumulation trust would be disregarded and that consolidating the trusts into one simple trust yielded increased tax liability of approximately $7,000. The trustees paid the alleged deficiency and filed this suit. The government argued its position based on an Internal Revenue Service (IRS) regulation that indicated that multiple trusts established for tax-avoidance purposes were invalid and must be consolidated into a single trust. The trusts argued that the consolidation regulation was invalid and that the tax-avoidance motive was irrelevant, in keeping with prior caselaw.
Rule of Law
Issue
Holding and Reasoning (Nims, J.)
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