To be Valid, a Trust must have a Purpose other than Tax Avoidance

Lawrence Saccato was in the storage business. Over the years, he created a variety of legal entities, and he managed them with his long-term girlfriend. What he failed to do was file a tax return, a failure that recurred for 14 straight years.

When the IRS attempted to audit Mr. Saccato, he was not cooperative. He claimed that he was neither the trustee nor the beneficiary of the various trusts he had set up in connection with his business. The IRS therefore used his bank account records to reconstruct Saccato’s income.

Before the Tax Court, Saccato continued to maintain that he did not own the business property, that he was not the trustee of the trusts (although he had so described himself to a bank and the state authorities). Saccato also made a number of assertions similar to those made by tax protesters, which the Tax Court characterized as “gibberish.” 

The Court held that “We find that these ‘trusts’ do not exist and that, if they did exist, they would be shams. The sole purpose of these fictitious entities was to obscure petitioner's true ownership of the assets they purportedly held.” The IRS determinations recreating Saccato’s income from bank records were sustained. What’s more, Saccato persisted in making nonsense arguments after he was warned to desist. The Court added a $10,000 penalty to the overdue taxes for wasting its time.

^©M.A. Co. All rights reserved.