                       T.C. Memo. 2005-180



                     UNITED STATES TAX COURT



AMC TRUST, J.O. HANEY, JR., J.O. HANEY, III AND PATRICIA A. HANEY
                 TRUSTEES, ET AL.,1 Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22243-03, 22244-03,   Filed July 25, 2005.
                 22245-03, 22246-03,
                 22294-03.



     Curtis W. Cannon and Paul Russo Stone, for petitioners.

     Catherine S. Tyson and Sheila R. Pattison, for respondent.




     1
      Cases of the following petitioners are consolidated
herewith: Jopah Trust, J.O. Haney, Jr., J.O. Haney, III,
Cynthia L. Haney and Patricia A. Haney, Trustees, docket No.
22244-03; Oliver and Company, John Oliver Haney, Jr. and Patricia
Ann Haney, Trustees, docket No. 22245-03; J.O. Haney, Jr. and
Patricia A. Haney, docket No. 22246-03; and Blanco Springs Trust,
Patricia A. Haney and Patricia J. Haney, Trustees, docket No.
22294-03.
                                  - 2 -

              MEMORANDUM FINDINGS OF FACT AND OPINION


       COHEN, Judge:    Respondent determined deficiencies and

additions to tax as follows:

AMC Trust, J.O. Haney, Jr., J.O. Haney, III and Patricia A. Haney
Trustees (docket No. 22243-03):

                                Additions to Tax/Penalties, I.R.C.
Year        Deficiency          Sec. 6651(a)(1)       Sec. 6662(a)

1999         $419,808             $20,990.40          $83,962.00
2000          390,477              97,619.00           78,095.00
2001          455,935             113,984.00           91,187.00

Jopah Trust, J.O. Haney, Jr., J.O. Haney, III, Cynthia L. Haney
and Patricia A. Haney, Trustees (docket No. 22244-03):

                                Additions to Tax/Penalties, I.R.C.
Year        Deficiency          Sec. 6651(a)(1)       Sec. 6662(a)

1997         $10,917                 –-                $2,183.00
1998          21,920                 –-                 4,384.00
1999          21,899                 –-                 4,380.00
2000           8,608                 –-                 1,722.00
2001           8,386               $2,096.50            1,677.00

Oliver and Company, John Oliver Haney, Jr. and Patricia Ann
Haney, Trustees (docket No. 22245-03):

                                Additions to Tax/Penalties, I.R.C.
Year        Deficiency          Sec. 6651(a)(1)       Sec. 6662(a)

1996         $266,090                –-               $53,218.00
1997          220,430                –-                44,086.00
1998          287,916                –-                57,583.00
1999          419,728                –-                83,946.00
2000          390,455             $97,614.00              –-
2001          461,616             115,404.00              –-
                                 - 3 -

J.O. Haney, Jr. and Patricia A. Haney (docket No. 22246-03):

                              Additions to Tax/Penalties, I.R.C.
Year         Deficiency       Sec. 6651(a)(1)       Sec. 6662(a)

1996           $32,957              –-                $6,591.40
1997            31,879              –-                 6,375.80
1998             8,935              –-                 1,787.00
1999           155,121              –-                31,024.20
2000            44,365           $11,048.85            8,873.00
2001            41,115            10,278.75            8,223.00

Blanco Springs Trust, Patricia A. Haney and Patricia J. Haney,
Trustees (docket No. 22294-03):

                              Additions to Tax/Penalties, I.R.C.
Year         Deficiency       Sec. 6651(a)(1)       Sec. 6662(a)

1997          $10,722               –-                $2,144.00
1998            5,429               –-                 1,086.00
1999           10,917               –-                 2,183.00
2000            2,823               –-                   565.00
2001            9,559             $2,389.75            1,912.00

The issue for decision is whether certain trust arrangements will

be respected for tax purposes.    Unless otherwise indicated, all

section references are to the Internal Revenue Code in effect for

the years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

                          FINDINGS OF FACT

       Petitioners resided in or had their principal place of

business in Texas at the time that their respective petitions

were filed.    Petitioners J.O. Haney, Jr. (J.O.), and Patricia A.

Haney (Patricia), collectively referred to as the Haneys, were

the parents of J.O. Haney, III (Joey), Patricia J. Haney, and
                                - 4 -

Jenna L. Burns.    Don Hal Haney is J.O.’s brother.    Cynthia L.

Haney (Cynthia) is the Haneys’ daughter-in-law.

     Before 1980, the Haneys operated an asphalt repair and

maintenance company (the asphalt business) as a sole

proprietorship under the name Asphalt Maintenance Co. of Texas

(AMC).   In February 1980, the Haneys incorporated their asphalt

business under the name J&J Commercial Services, Inc. (J&J).        The

business was incorporated on the advice of Earl Post, an

attorney, for the purpose of limiting liability.      Neither Post

nor any other attorney or competent professional participated in

the formation of the trusts involved in these cases.

     In corporate form, J&J continued to do business as Asphalt

Maintenance Co. of Texas.    J&J was owned by the Haneys, with J.O.

holding a 49-percent interest and Patricia owning a 51-percent

interest.    Patricia served as the president of J&J, and J.O.

served as the vice president.

The Trusts

     In 1993, the Haneys paid Royce McCarley (McCarley) the sum

of $11,000 to prepare a trust instrument for AMC Trust.      The

Haneys, however, became disenchanted with McCarley and did not

implement the trust document.    The trust document prepared by

McCarley was destroyed.

     In 1996, the Haneys met with Karl Dahlstrom (Dahlstrom).

Dahlstrom prepared for the Haneys a “Contract and Declaration of
                                - 5 -

Trust for AMC, A Common Law Pure Trust Organization” (AMC Trust),

dated October 16, 1996.    At all material times, the Haneys and

Joey acted as trustees of the AMC Trust.      As of January 1, 1998,

Cynthia acted as a fourth trustee.

     Relevant provisions of the AMC Trust instrument conveyed the

accounts receivable of J&J to the AMC Trust in exchange for $10

and trust certificates.    The trustees were said to “act as

absolute owners and hold title [to the trust property] in fee

simple and control as joint tenants”.       The declaration provided:

          6. The named Trustees, for themselves and their
     successors in trust irrevocable do hereby accept the
     conveyance and acknowledge delivery of all the property
     specified, together with all the terms of the Trust
     Organization herein set forth, agreeing to conserve and
     improve the Trust Organization, to invest and reinvest
     the funds of said Trust Organization, in such manner as
     will increase the financial rating of the Trust
     Organization exercising their best judgment and
     discretion, in accordance with the Trust organization
     minutes, making distribution of portions of the
     proceeds and income as in their discretion, and
     according to the minutes, and upon final liquidation
     distributing the assets to the existing certificate
     holders as their contingent right may appear; and in
     all other respects administering said Trust
     Organization in good faith strictly in conformity
     hereto.

         *      *      *        *       *       *      *

          16. The Trustees shall regard this instrument as
     their sufficient guide, supplemented from time to time
     by resolutions of their board covering contingencies as
     they arise and recorded in the minutes of their
     meetings, or by rules or regulation, as deemed
     expedient and consistent with the orderly conduct of
     business.
                               - 6 -

          17. The Trustee(s) shall have the exclusive power
     to construe the meaning and intent of this Trust
     Organization indenture or instrument and the
     Trustee’s(s’) construction shall be conclusive, legally
     binding and will govern. The Trustee’s(s’)
     construction will be the same as the intention of all
     parties as expressed throughout the entire indenture or
     instrument.

         *      *      *      *        *    *      *

          26. This Trust Organization shall continue for a
     period of seventy-five years from date, unless the
     Trustees shall unanimously determine an earlier date.
     The Trustees may at their discretion, because of
     threatened depreciation in values, or other good and
     sufficient reason, liquidate the assets, distribute and
     close the Trust Organization at an earlier date
     determined by them. * * *

         *      *      *      *        *    *      *

          34. Trustees may from time to time declare and
     pay out of net income received by them such
     distributions as they in their sole discretion deem
     proper and advisable. Said distributions may be by
     actual payment or by credit. Distribution by credit
     means a declaration of income will be transferred to
     the certificate holders via appropriate forms pursuant
     to the Internal Revenue Code while the actual income
     will be retained by the trust for reserves or
     reinvestment. The trustees shall have the right, at
     their discretion, to revoke the certificates of any
     holder thereof who refuses to accept distribution by
     credit and pay any tax due thereon.

     The Haneys and Dahlstrom also formed a trust to be known as

Oliver & Co.   The “Declaration of Charitable Remainder Trust of

Oliver & Co.” designated J&J as the grantor, the Haneys as the

trustees, and Praisesong, Inc., as the beneficiary.    The grantors

purported to transfer to the trust property “described in
                               - 7 -

Schedule A”, Itemized Deductions, but no Schedule A was attached.

The trust provided:

          In each taxable year of the trust, the Trustee(s)
     shall pay to J.O. Haney Jr. & Patricia A. Haney,
     (hereinafter referred to as “the Recipient(s)”), an
     amount equal to five percent (5%) per annum of the net
     fair market value of the assets of the trust valued as
     of the day of the initial transfer. The annuity trust
     amount will be paid on an annual basis. To the extent
     income is not sufficient, payments may be made from
     principal. Any income of the trust for a taxable year
     in excess of the annuity trust amount shall be added to
     principal.

         *      *      *       *       *      *     *

          Upon the death of the Recipient(s), the Trustee(s)
     shall distribute any amount due either of the
     Recipient(s) or the Recipient(s)’ estate, under the
     provisions above, to the estate of the Recipient(s).
     The balance of the assets of this annuity trust shall
     be liquidated and after all termination fees, taxes,
     and expenses are paid, the remaining assets shall be
     distributed free and clear of all trusts to the
     Beneficiary, “Praisesong Inc.”, 3013 Green Hill Dr.,
     Plano, Texas 75093, TID #XX-XXXXXXX (hereinafter
     referred to as “the Charitable organization”). If the
     Charitable Organization is not an organization
     described in sections 170(c), 2055(a), and 2522(a) of
     the Code at the time when any principal or income of
     the trust is to be distributed to it, then the
     Trustee(s) shall distribute such principal or income to
     such one or more organizations described in section
     170(c), 2055(a), and 2522(a) as the Trustee(s) shall
     select in their sole discretion.

No minutes were maintained for Oliver & Co.

     After formation of the AMC Trust, the Haneys continued to

operate their asphalt business in the same manner as they did

when it was reported by J&J.   The Haneys retained substantial

control of all business activity, the business bank accounts, and
                                - 8 -

the business assets.    The equipment used in the asphalt business

was listed as an asset on the books of AMC Trust.

     Joey worked in the asphalt business prior to and during the

years in issue.   Commencing in about October 1996, Joey operated

the asphalt business.   Joey continued to consult his parents

about various business decisions and operations, and Patricia

continued to perform services in the office.    J.O. retained

custody and control of the business records.

     Oliver & Co. never made a distribution to any charitable

beneficiary.   After Oliver & Co. was formed, the Haneys each

received annual distributions of $3,000 from Oliver & Co.    In

this connection, each year $6,000 was transferred from AMC

Trust’s bank account to Oliver & Co.’s bank account, and the

Haneys, as trustees of Oliver & Co., issued checks to themselves.

Otherwise, Oliver & Co. has never been funded with cash or other

assets.

     In addition to AMC and Oliver & Co., the Haneys also formed

Jopah Trust (Jopah), TuSwanz Trust (TuSwanz), Blanco Springs

Trust (Blanco Springs), Adobe Springs Trust (Adobe), JoDon II

Trust, and H-Five Productions Trust (H-Five).    Jopah leased

equipment and real property to AMC; however, rental proceeds from

AMC were reported on a Schedule C, Profit or Loss From Business,

attached to the Haneys’ returns for 1997 through 1999.    For 2000

and 2001, payments by AMC to Jopah were reported on Jopah’s
                                - 9 -

Forms 1041, U.S. Income Tax Return for Estates and Trusts, and

deductions were claimed in the same amount, resulting in no

taxable income.

     Blanco Springs allegedly owned rental property, although the

income and expenses of the real property rentals were reported on

Schedules E, Supplemental Income and Loss, attached to the

Haneys’ returns for 1997 through 1999.   TuSwanz held the real

property that was occupied by the Haneys as a residence.    There

was no rental agreement, and the Haneys did not pay TuSwanz rent

for the residence.   The Haneys, and not TuSwanz, were compensated

by insurance for damage to real and personal property resulting

from a flood in October 1998.   The Haneys claimed a casualty loss

on their 1998 Federal income tax return for damage from the

flood.   As of 1999, TuSwanz and J.O.’s brother, Don Hal Haney,

each held a 50-percent beneficial interest in Adobe.

     H-Five maintained bank accounts that were used to pay the

Haneys’ personal living expenses.   Checks written on Adobe and

payable to Patricia were deposited into the H-Five bank account.

TuSwanz and Adobe received royalty payments from various entities

and received payments from the U.S. Department of Agriculture.

Tax Reporting and Examination

     After an election of S corporation status for J&J was made

in 1987, the income of the asphalt business was reported on

Forms 1120S, U.S. Income Tax Return for an S Corporation.     After
                              - 10 -

the formation of AMC Trust, the income of the asphalt business

was reported on AMC Trust’s Form 1041.    AMC Trust claimed income

distribution deductions, flowing the profits of the asphalt

business to Oliver & Co.   Neither AMC Trust nor Oliver & Co.

reported any taxable income or any tax liability for the years in

issue.

     On its Forms 1120S, J&J reported total income of $47,968.13

for 1993; $69,971 for 1994; $1,160 for 1995; a loss of $11,983

for 1996; and zero income for 1997 through 2001.    On

Schedules K-1, Shareholder’s Share of Income, Credits,

Deductions, etc., attached to the returns for 1993 through 1996,

J&J’s income was shown as distributed 49 percent to J.O. and

51 percent to Patricia.

     On Schedules C to its Forms 1041, AMC Trust reported profit

or loss from the asphalt business as follows:

                    Year       Profit or loss

                    1996           $111,712
                    1997             42,552
                    1998             75,051
                    1999            288,096
                    2000             79,567
                    2001             66,363

On each of its Forms 1041, AMC Trust reported taxable income of

minus $100, after deducting the total reported profit as an

“income distribution deduction”.    The profits from the asphalt

business in fact exceeded the amounts set forth above because of
                               - 11 -

deductions disallowed by respondent and not contested by

petitioners.

     On their Form 1040, U.S. Individual Income Tax Return, for

1994, filed on or about October 16, 1995, the Haneys reported

total tax of $50,463.   On their Form 1040 for 1995, filed on or

about October 15, 1996, the Haneys reported total tax of $183.

     On their Form 1040 for 1996, the Haneys reported total tax

of $2,951.   On the signature page of the 1996 Form 1040, Patricia

twice wrote the words “*See attached disclaimer statement”.

Attached to the Form 1040 was a “Disclaimer Statement” and

various tax protest materials claiming that the assessment and

payment of income tax is voluntary and other legalistic arguments

taken out of their original context.

     On their Form 1040 for 1997, the Haneys reported total tax

due of $3,956.   The return was signed by each of the Haneys, with

the word “Trustee” following his or her signature.   On

Schedule C, a loss of $13,524 was claimed from “Equipment

leasing”.    The return reported wages from AMC Trust in the amount

of $2,000 for J.O. and $7,000 for Patricia.

     On their Forms 1040 for 1998 and 1999, the Haneys reported

zero tax liability.   On their Form 1040 for 2000, filed in

September 2002, the Haneys reported zero income tax and self-

employment tax of $230.    On their Form 1040 for 2001, filed in

October 2002, the Haneys reported total tax of $9,967.
                              - 12 -

     Oliver & Co. did not report the asphalt business net income

on any return for 1996 through 1999.     On its Form 1041-A, U.S.

Information Return Trust Accumulation of Charitable Amounts, for

2000, dated September 25, 2002, Oliver & Co. reported income from

AMC Trust in the amount of $79,567, charitable deductions of

$73,567, and fiduciary fees of $6,000, leaving zero net income.

Oliver & Co. made no distribution to any charitable beneficiary

during the years in issue.

     The Oliver & Co. Form 1041-A was filed after examination of

petitioners’ returns commenced.   When Joey was contacted about

the examination of AMC Trust, he referred the revenue agent

conducting the examination to J.O.     The Haneys sent to the

revenue agent a document entitled “Notice of Expatriation and

Repatriation” dated March 11, 2002, in which they purported to

disavow their citizenship in the United States and “repatriate

back into the Texas Republic”.

     The Internal Revenue Service commenced a proceeding to

enforce a summons, and by order filed June 12, 2002, J.O. and

Joey were ordered to produce the records and materials requested

in the summons.   On July 1, 2002, the U.S. District Court for the

Western District of Texas, San Antonio Division, filed an order

finding, among other things, that J.O. and Joey “had submitted a

series of ‘tax protestor’ type responses to the summons and had

not complied with the May 9, 2002 Order.”     The Court order
                              - 13 -

further recited that it had admonished J.O. and Joey to comply

with the applicable law and court orders and recommended that

they consult with qualified legal counsel; that J.O. and Joey

requested additional time to assemble records and have the

opportunity to consult with legal counsel; that, instead, J.O.

and Joey had filed documents that:

     are the type that have been previously rejected by the
     Courts as groundless, not requiring response and
     sanctionable. See Lonsdale v. United States, 919 F.2d
     1440, 1447-48 (10th Cir. 1990); United States v.
     Montgomery, 778 F.2d 22, 225 (5th Cir. 1985); Crain v.
     C.I.R., 737 F.2d 1417 (5th Cir. 1984). * * * [J.O.
     and Joey] are again admonished that they will be held
     to comply with applicable laws and questions concerning
     their rights and obligations should be directed to
     qualified legal counsel. The Court will not permit
     valuable judicial resources to be wasted and government
     process delayed dealing with frivolous filings.

     On July 12, 2002, J.O. and Joey appeared before the revenue

agent.   They made frivolous arguments and asserted that they

would not answer questions because of their Fifth Amendment

privilege.   At a hearing on July 19, 2002, J.O. testified:

     the activity of the trust, the documents that the
     Internal Revenue Service–-various things of that sort
     have been my creations, my son has followed his
     father’s advice apparently to his great sorrow. I take
     full responsibility for any of the documents, the
     trusts. He has a limited knowledge of–-he’s read it
     all, but he’s a very good worker. He manages and runs
     the business. * * *

On July 26, 2002, the District Court held J.O. and Joey in

contempt of court.   The District Court ordered that Joey be taken

into custody and held pending compliance with the District
                                - 14 -

Court’s order, but the District Court stayed incarceration

pending compliance with its orders.       Thereafter, records were

finally produced, and the revenue agent’s questions were answered

by then recently retained counsel.

                                OPINION

     The issue in these cases is whether certain trusts

established by the Haneys will be respected for tax purposes.

All other issues have been abandoned by petitioners’ failure to

address them in their briefs.    Rule 151(e)(2), (4); Cluck v.

Commissioner, 105 T.C. 324, 325 n.1 (1995); Petzoldt v.

Commissioner, 92 T.C. 661, 683 (1989); Money v. Commissioner, 89

T.C. 46, 48 (1987); see Vetrano v. Commissioner, T.C. Memo. 2000-

128; Levert v. Commissioner, T.C. Memo. 1989-333, affd. without

published opinion 956 F.2d 264 (5th Cir. 1992).       Questions

concerning the viability of the various trusts for tax purposes

are substantially resolved based on concessions expressly made in

petitioners’ filings, as quoted below.       Petitioners’ concessions

have simplified this opinion, because making sense of the

extensive and internally contradictory record without the

assistance of well-organized proposed findings of fact from

either party would be an undue burden on the Court.       See Stringer

v. Commissioner, 84 T.C. 693, 705 (1985), affd. without published

opinion 789 F.2d 917 (4th Cir. 1986).
                              - 15 -

     Petitioners bear the burden of proof in these cases, and it

has not shifted under section 7491(a).    Petitioners did not

present credible evidence that the trusts had economic substance,

and the credibility of the evidence that they did produce was

undermined by their implausible claims.    Petitioners did not

cooperate with respondent’s examination; in fact, they obstructed

the examination by refusing to produce documents or answer

questions until J.O. and Joey were found in contempt by the

District Court.   Sec. 7491(a)(2)(B).

     The most implausible of petitioners’ claims is the Haneys’

assertion that the multiple trusts that they established, with

the effect of their reporting minimal tax liability on

substantial profits of the asphalt business, were not tax-

motivated.   Petitioners contend that the trusts were established

for “asset protection” purposes.   They have never explained,

however, how the multiple trusts gave them more protection

against potential but unnamed creditors than that provided by the

corporate form in which the asphalt business was operating from

1980 through 1996.   We are not persuaded that the vague term

“asset protection” contemplates any creditors other than the U.S.

Treasury.

     The Haneys reported significant income tax liability on

their 1994 return, filed in October 1995.    The next year they met

with Dahlstrom.   Attached to their 1996 return was a frivolous
                                - 16 -

“disclaimer”, as to which J.O. testified:    “I would assume it

came from Karl Dahlstrom”.   The Haneys denied that they discussed

tax avoidance with Dahlstrom.    Dahlstrom, however, had been in

the abusive trust business for many years.    See, e.g., Akland v.

Commissioner, 767 F.2d 618 (9th Cir. 1985), affg. T.C. Memo.

1983-249; United States v. Dahlstrom, 713 F.2d 1423 (9th Cir.

1983); Dahlstrom v. Commissioner, T.C. Memo. 1991-264 and 1991-

265, affd. without published opinion 999 F.2d 1579 (5th Cir.

1993).   The Haneys claim that they did not know of Dahlstrom’s

history.   Whether they did or did not know of the reported cases,

we do not believe that Dahlstrom did not use tax avoidance as an

objective in promoting his trust schemes.    In addition, the lack

of credibility in J.O.’s testimony is demonstrated by the

following colloquy:

          Q [respondent’s counsel] Mr. Haney, so
     Mr. Dahlstrom did not mention anything about using the
     trusts would–-about the trusts providing tax savings?

          A [J.O.]    Not to my knowledge.   Define tax
     savings.

          Q Sir, are you saying that he did not say it or
     do you not remember him saying it?

          A I don’t remember him saying it, but what-–what
     do you mean, talk about? What--

          Q Did he mention taxes, federal income taxes, at
     all in his presentations?

          A He mentioned that each trust should have an EIN
     number so they could do their tax returns.
                               - 17 -

          Q   Anything else?

          A   Not to my recollection.

Patricia claimed that she did not recall the disclaimer attached

to the 1996 return.   Patricia also denied any recollection of the

documents that the Haneys signed in 2002.

     J.O. attributed to other sources, including the Internet,

the frivolous documents they submitted in 2002 and their

frivolous responses in the summons enforcement proceedings.

     We do not accept petitioners’ claims that the trusts were

not tax-motivated.    Tax motivation alone, however, is not a

ground for disregarding the trusts.     The parties have addressed

in their briefs the relevant factors, based on Markosian v.

Commissioner, 73 T.C. 1235, 1243-1244 (1980), which are:

(1) Whether the Haneys’ relationship to the asphalt business and

other assets changed when the trusts were created; (2) whether

the trusts had an independent trustee; (3) whether an economic

interest passed to other trust beneficiaries; and (4) whether the

Haneys were bound by any meaningful restrictions on the trusts’

operation.    See, e.g., Sparkman v. Commissioner, T.C. Memo. 2005-

136; Edwards v. Commissioner, T.C. Memo. 2005-52; Gouveia v.

Commissioner, T.C. Memo. 2004-256.      Petitioners have conceded

that none of the trusts had an independent trustee.
                             - 18 -

The Haneys’ Relationship to the Property of the Trust

     Petitioners argue in their opening brief:

     It is only the economic substance of AMC Trust, and
     Oliver & Company Charitable Remainder Trust, that need
     be evaluated.

          *      *      *      *        *    *      *

          Prior to the creation of AMC Trust, Mr. and
     Mrs. Haney, as shareholders of the Subchapter S
     corporation, J&J Commercial Services, Inc., enjoyed
     full and unrestricted use of all the business assets
     and income produced by the operation of Asphalt
     Maintenance Company.

          After the creation of AMC Trust, Mr. and
     Mrs. Haney continued to have full and unrestricted use
     only of the assets simultaneously placed in the grantor
     trusts. Their personal residence was placed in one
     grantor trust, and its upkeep was paid for by Mr. and
     Mrs. Haney’s personal assets and income, not by
     property of AMC Trust. Their personal vehicles were
     placed in another grantor trust, and again, upkeep was
     paid for from personal sources, not AMC Trust.

          Business machinery and equipment was placed in a
     grantor trust and was leased to AMC Trust for payment.
     Maintenance of the equipment was, per the terms of the
     lease, the responsibility of the lessee. Land acquired
     by Mrs. Haney was placed in Jopah Trust and leased to
     AMC Trust for payment. In both cases, these leases
     were reasonable and rational uses for property
     controlled by Mr. and Mrs. Haney, but beyond the right
     to receive rent, their ownership interest in the
     subject property through the grantor trusts does not
     imply or convey any greater control over other revenues
     of Asphalt Maintenance Company or AMC Trust. [Exhibit
     refs. omitted.]

On the other hand, respondent argues:

     The Haneys simply operated AMC in the exact same manner
     as they conducted operations as J&J. They retained
     substantial control of the business activity and the
     bank accounts.
                                - 19 -


          Prior to the creation of the trust arrangements,
     the Haneys were grooming their son, Joey Haney, to
     assume control of the family-run asphalt business.
     After the creation of AMC, the Haneys were still active
     in the asphalt business. Eventually, Petitioner-
     husband [J.O.] retired but Petitioner-wife [Patricia]
     remained active. The asphalt business retained the
     same employees and operated in the same manner as prior
     to the creation of the trusts.

          AMC used trust units instead of J&J corporate
     shares. They continued to use the same name, Asphalt
     Maintenance Company of Texas, to do business using the
     same assets. They reported the equipment and business
     real property assets supposedly transferred to the
     trusts on AMC’s financial statements. J&J and AMC used
     the same equipment and real property in the asphalt
     business.

We agree with respondent.   The only instances cited by

petitioners of “differences” with respect to the asphalt business

are differences of form created by the trusts.   Thus their

reasoning is circular.   They have shown no material difference in

the manner in which the business was operated or the assets were

used before and after creation of the trusts.    See Sparkman v.

Commissioner, supra; Edwards v. Commissioner, supra; Gouveia v.

Commissioner, supra; Castro v. Commissioner, T.C. Memo. 2001-115.

Transfer of Economic Interest

     Petitioners’ position is that the earnings of the asphalt

business operated by AMC Trust are not taxable because they were

transferred to Oliver & Co., allegedly a “charitable remainder

trust”.   This rationale is used by petitioners to explain why

neither AMC Trust nor Oliver & Co., nor any of the other trusts,

ever reported any taxable income or paid any Federal income
                               - 20 -

taxes.    In fact, however, the only funds ever transferred to

Oliver & Co. were the amounts necessary to pay back to the Haneys

“trustee fees”.    In their posttrial opening brief, petitioners:

     recognize that there is some doubt as to the
     correctness of taking those deductions [for income of
     the asphalt business not taxed because it was shown as
     distributed to Oliver & Co.], since the funds they
     represent remained available to AMC Trust for its
     operations of Asphalt Maintenance Company, and were not
     actually transferred beyond AMC’s reach. * * *

The facts found concerning Oliver & Co. establish that it was not

a bona fide charitable remainder trust.      See secs. 642(c),

664(d); sec. 1.664-1(a)(4), Income Tax Regs.      It was simply one

of a series of trust entities established to make taxable profits

of the asphalt business disappear.      Petitioners have failed to

prove that any economic interest passed to anyone other than the

Haneys.    See Markosian v. Commissioner, supra at 1244; Sparkman

v. Commissioner, supra; Edwards v. Commissioner, supra; Gouveia

v. Commissioner, supra; Castro v. Commissioner, supra.

Trust Restrictions

     Our findings of fact are notably devoid of any meaningful

restrictions contained in the trust documents, because there were

no meaningful restrictions.    Petitioners concede in their

pretrial memorandum:    “The only affirmative restriction placed on

Petitioners’ actions by the AMC trust document is that they are

required to exercise their best judgment and discretion for the

conservation and improvement of the trust organization.”      At
                                - 21 -

trial, the Haneys agreed that they could not take the funds of

AMC Trust to Las Vegas, Nevada, and gamble them away and asserted

that they could not liquidate the assets of AMC Trust and

distribute the money to the trustees.    In their posttrial opening

brief, petitioners argue:    “The trustees, in essence, are

required to exercise prudent business judgment, to the benefit of

the trust organization.”    Petitioners again proceed to a circular

argument that “these limitations, despite not being excessive or

burdensome, are substantial.     They do constrain the discretion of

the trustees, and that fact is reflected in the behavior of the

trustees in this case”.     The Haneys’ subjective beliefs as to any

prudent limitations and their behavior do not establish any

restrictions.   The objective fact is that none of the Haney

family members were restricted by any provision in the trust

agreements, and they controlled all decisions concerning the

trust property.   Neither in the documents nor in their conduct is

there any evidence that they were bound by any meaningful

restrictions imposed by the trusts or by the law of trusts.    See

Markosian v. Commissioner, 73 T.C. at 1244; Sparkman v.

Commissioner, T.C. Memo. 2005-136; Edwards v. Commissioner, T.C.

Memo. 2005-52; Gouveia v. Commissioner, T.C. Memo. 2004-256;

Castro v. Commissioner, supra.
                              - 22 -

Conclusion

     After considering the factors set forth in our prior cases

and discussed in the briefs of the parties, we conclude that AMC

Trust, Oliver & Co., Blanco Springs, and Jopah were shams,

lacking economic substance, and are to be disregarded for Federal

income tax purposes.   The net income of the asphalt business is

properly taxable to the Haneys.   We need not consider

respondent’s alternative arguments that would lead to the same

result.

     To reflect the foregoing and to eliminate “whipsaw”

determinations made against the trusts,


                                          Decisions will be entered

                                    under Rule 155.
