In the

United States Court of Appeals

For the Seventh Circuit

Nos. 00-1186 and 00-1187

FRANK MUHICH, VIRGINIA MUHICH,

and MIDWEST PORTRAITS CORPORATION,

Petitioners-Appellants,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

Appeals from a Decision of the

United States Tax Court.

Nos. 21561-97 and 21562-97--David Laro, Judge.

Argued October 25, 2000--Decided January 25, 2001

 Before COFFEY, DIANE P. WOOD, and WILLIAMS, Circuit

Judges.

 COFFEY, Circuit Judge. On August 6, 1997, the

Commissioner of Internal Revenue issued a notice

of deficiency to Frank and Virginia Muhich

stating that they had understated their tax

liabilities on their joint returns for the 1994

and 1995 tax years. On the same day, the

Commissioner also issued a notice of deficiency

to Midwest Portraits Corporation (Midwest) for

the tax years ending on June 30, 1994, 1995, and

1996./1 On October 13, 1999, the Tax Court

entered judgment in favor of the Commissioner in

the following amounts. With regard to the

Muhichs’ joint return, the Tax Court assessed a

deficiency of $17,898 for the tax year 1994 and

$21,885 for the tax year 1995. The Muhichs also

received tax penalties pursuant to I.R.C. sec.

6662(a) for the tax years 1994 and 1995 of $3,580

and $4,377, respectively./2 With regard to

Midwest, the Tax Court assessed deficiencies for

the tax years ending on June 6, 1994, 1995, and

1996 of $1,800, $0, and $825, respectively.

Midwest also received penalties pursuant to

I.R.C. sec. 6662(a) of $360, $0, and $165 for the

tax years 1994, 1995, and 1996, respectively. We

affirm.

I. BACKGROUND

 Frank Muhich is the owner, president, and

operator of a photography business located in
Mahomet, Illinois, doing business as Midwest

Portraits Corporation. From 1985 forward, Midwest

worked exclusively with fire, rescue, and

ambulance departments in Illinois, Iowa,

Wisconsin, and Indiana taking pictures, assisting

in soliciting donations, and handing out

complimentary certificates./3 Before the tax

years contested by the IRS, Frank Muhich received

a salary from Midwest which essentially amounted

to him paying himself on a commission basis; the

better Midwest performed, the higher Muhich set

his salary.

 All this changed in 1994 when Frank Muhich met

with a financial planner named James Myers. Myers

was a representative of Heritage Assurance Group,

an entity that promoted multitrust schemes as a

means of avoiding taxes. According to the

district court, the Heritage tax avoidance scheme

worked as follows:

An individual transfers his or her assets and

right to receive income to a newly created family

trust in exchange for a certificate of beneficial

interest (CBI). A CBI gives the individual the

right to receive any distributions that the

trustee, who is the same as the transferring

individual, decides to make. The family trust

pays and deducts all of the trustee’s personal

expenses and distributes any excess corpus to a

charitable trust created under the scheme. The

individual creates other trusts to circulate

funds among and between.

(Emphasis added).

 After meeting with Myers, the Muhichs traveled

to the home office of Heritage and met with

Edward Bartoli, an attorney who was the principal

promoter of Heritage’s scheme. Bartoli, in turn,

introduced the petitioners-appellants to James

Savino, a certified public accountant associated

with Heritage./4 

 On May 4, 1994, after paying Heritage $12,000

for a comprehensive trust packet, the Muhichs

created the Muhich Asset Management Trust (Asset

Trust)./5 Within days of the creation of the

Asset Trust, Mrs. Muhich transferred virtually

all of her property to her husband./6 In turn,

Frank Muhich transferred all of his property

(which now included his wife’s property) to the

Asset Trust, including the right to receive

compensation for his services (i.e. the salary he

received from Midwest). In exchange for this

transfer, Frank Muhich and his wife received a

CBI representing 50 and 40 units, respectively.

At this time, the Muhichs were the sole trustees

and sole beneficiaries of the Asset Trust.
 What can only be described as a red light to

the IRS, the Muhichs set up the following

additional trusts. On May 7, 1994, the Asset

Trust established the Muhich Charitable Trust

(Charitable Trust). The Asset Trust received a

CBI representing 100 units of ownership in the

Charitable Trust and the Muhichs were listed as

the sole trustees.

 On May 15, 1994, the Asset Trust created the

Muhich Business Trust (Business Trust). Once

again, the Asset Trust received a CBI

representing 100 units of ownership and the

Muhichs were designated as the sole trustees. On

May 18, 1994, the Business Trust created the

Muhich Equity Trust (Equity Trust) and the Muhich

Vehicle Trust (Vehicle Trust). The Business Trust

funded the corpus of each trust with $10 in

exchange for a CBI from each trust representing

100 units of ownership in each trust. As always,

the Muhichs were again designated as the sole

trustees.

 As sole trustees and exclusive beneficiaries of

the five trusts, the Muhichs had exclusive

control over the trust property. Additionally,

they, at their sole discretion, had the right to

direct any and all distributions from the trusts.

The couple also controlled the bank accounts, and

their ability to deal with and benefit from all

trust property was as free and unrestricted as

before the trusts were established.

 For example, Midwest conducted business the same

as it did before the trusts were created. Frank

Muhich continued to run the business and perform

the same duties. However, he no longer took a

formal salary from Midwest. Instead, Midwest

contracted with the Asset Trust in order that the

Asset Trust receive $3,000 per month plus

possible additional compensation depending upon

the company’s performance.

 1. The Trusts

 The Asset Trust did not engage in any business

or trade at any time. However, for the taxable

years 1994 and 1995, the Asset Trust had

approximately $114,370 and $202,242 in available

funds deposited into its accounts. These funds

included $100,820 and $130,193 for 1994 and 1995,

respectively, in "consulting fees" received by

the Asset Trust for services performed by Frank

Muhich. The balance of these funds was composed

of transfers from Midwest and other trusts

characterized by the Muhichs as loans. From these

funds, the Asset Trust paid the Muhichs’ housing,

transportation, healthcare, education, as well as

miscellaneous expenses. These payments included:

$70,000 in construction costs, interest costs,
and closing costs for their new home; all the

education costs for their college-educated

children; utility bills; automobile payments;

mortgage payments; and trustee fees to the

Muhichs. After deducting the expenses described

above along with the donations made to the

Charitable Trust (which the Muhichs controlled),

the Asset Trust reported zero taxable income for

the taxable years 1994 and 1995./7

 It is interesting to note that the tax returns

for the trusts in 1994 were prepared by Savino.

The Muhichs’ long-time tax advisors, the Martins,

were not made aware of the petitionersappellants’ trust scheme until late 1994 when

they prepared Midwest’s tax return for the fiscal

year. At that time, the Martins discovered that

Frank Muhich had reportedly received no income

from Midwest. The Martins became suspicious and

questioned the petitioners-appellants as to the

accuracy of their discovery. At the request of

the Muhichs, one of the Martins attended a

Heritage seminar. Although the Martins were

concerned over the legality of the trust scheme

(they advised Mr. Muhich of their concerns), the

Martins prepared the Trusts’ 1995 returns and the

Charitable Trust’s 1996 return. However, the

Martins refused to prepare any other trust tax

returns for the Muhichs.

 2. Midwest

 Midwest filed federal income tax returns for

its fiscal years ending on June 30, 1994, 1995,

and 1996. In each of these returns, several

irregularities caught the attention of the IRS.

For example, in its 1994 return, Midwest deducted

the $12,000 fee it paid to Heritage for the

comprehensive trust packet. Similarly, in the

1996 fiscal year, Midwest deducted $5,500 in fees

relating to the administration of the trusts.

Midwest labeled these payments "consulting fees"

and deducted these amounts on its income tax

returns. In the notice of deficiency, the

Commissioner determined that the payments were

not "ordinary and necessary" business expenses

and that they were, in fact, non-deductible

constructive dividends. The Commissioner

disallowed the deductions in full.

 3. The Muhichs

 The Muhichs filed federal income tax returns

for 1994 and 1995. On these returns, the Muhichs

did not report any income from Midwest in the

form of compensation or dividends. In the notice

of deficiency, the Commissioner determined that

the trust scheme was an abusive trust arrangement

and therefore irrelevant for tax purposes. The
Commissioner further determined that Frank Muhich

received constructive dividends/8 from Midwest

in the amounts of $112,820 and $130,193 for 1994

and 1995, respectively.

II. ISSUES

 On appeal, the Muhichs challenge the Tax

Court’s determination that the trusts were

"shams" and should be disregarded for tax

purposes. The Muhichs further challenge the Tax

Court’s decision to impose penalties under I.R.C.

sec. 6662(a) as well as the decision to deny

$17,500 worth of deductions.

III. ANALYSIS

 The case before us resembled a "typical" family

trust case, in which the taxpayer "assigns" his

income and other assets to the trust and the

trust funds are used to cover all his personal

expenditures, purportedly allowing deduction of

those expenditures. However, as we stated in

Schultz v. Commissioner, 686 F.2d 490, 492-93

(7th Cir. 1982) (footnote in original),

It is fundamental to our income tax regime that

personal consumption expenditures--food,

clothing, travel, education, entertainment--do

not generate income tax deductions unless they

are somehow inextricably linked to the production

of income./9 When taxpayers buy cars, travel, or

take out life insurance policies, they make those

expenditures out of after-tax dollars. The trust

devices here are a transparent attempt to alter

that state of affairs by turning all the

families’ activities into trust activities and

all the families’ expenses into expenses of trust

administration. If this device worked, the

Schulzes and the Whites would, unlike the rest of

us, make all their consumptive expenditures with

pre-tax dollars.

 It is well-established that the Commissioner is

not required to recognize, for tax purposes,

those transactions which lack economic substance.

See, e.g., Gregory v. Helvering, 293 U.S. 465,

467 (1935). As the Supreme Court has observed:

Decision of the issue presented in these cases

must be based ultimately on the application of

the factfinding tribunal’s experience with the

mainsprings of human conduct to the totality of

the facts of each case. The nontechnical nature

of the statutory standard, the close relationship

of it to the data of practical human experience,

and the multiplicity of relevant factual

elements, with their various combinations,

creating the necessity of ascribing the proper

force to each, confirms us in our conclusion that
primary weight in this area must be given to the

conclusions of the trier of fact.

Commissioner v. Duberstein, 363 U.S. 278, 289

(1960). Furthermore, the question of economic

substance is factual and the Tax Court’s findings

will not to be disturbed unless they are clearly

erroneous. 26 U.S.C. sec. 7482(a)(1) (court of

appeals reviews Tax Court decisions in same

manner as district court decisions).

 In Neely v. United States, 775 F.2d 1092, 1094

(9th Cir. 1985), the court stated,

The [Muhichs’] transfer of the title of assets to

a trust while retaining their use and enjoyment

is a sham transaction that will not be recognized

for tax purposes. A sham transaction is one

having no economic effect other than to create

income tax losses. Zmuda v. Commissioner, 731

F.2d 1417, 1421 (9th Cir. 1984), citing Thompson

v. Commissioner, 631 F.2d 642, 646 (9th Cir.

1980). Even where a taxpayer has structured a

transaction so that it satisfies the formal

requirements of the Internal Revenue Code, legal

effect will be denied it if its sole purpose is

to evade taxation. Id. A trust arrangement may

not be used to turn a family’s personal

activities into trust activities, with the family

expenses becoming expenses of trust

administration. Schulz v. Commissioner, 686 F.2d

490, 493 (7th Cir. 1982).

This is the situation we have before us. The

Muhichs transferred their assets to the trusts

and attempted to have the trusts pay all their

personal expenses. As detailed above, courts have

uniformly held that such transactions are a sham

and that the Commissioner may disregard these

sham trusts for tax purposes. This is what the

Commissioner did and we can see no reason to

overturn the determination of the Tax

Court./10

 The decision of the Tax Court is

AFFIRMED.

FOOTNOTES

/1 Frank Muhich is the president and sole

shareholder of Midwest Portraits Corporation.

/2 I.R.C. sec. 6662(a) states:

Imposition of penalty--If this section applies to

any portion of an underpayment of tax required to

be shown on a return, there shall be added to the

tax an amount equal to 20 percent of the portion

of the underpayment to which this section
applies.

/3 Although the record is less than clear, it

appears that Midwest is in the business of taking

pictures of departmental employees and assisting

in the production of promotional items.

/4 At about this time, the Muhichs submitted a form

containing their financial information and assets

to Heritage. On this form, the Muhichs stated

that their number one objective was "tax

avoidance."

/5 It is interesting to note that although the

petitioners had used Kim and Denise Martin

(certified public accountants) as tax advisors

since 1982, they did not consult the Martins as

to the legality of the trust scheme in question

before creating the Asset Trust.

/6 This property included an exhaustive list of

housewares, jewelry, electronics, and china.

/7 The other trusts also filed returns showing zero

taxable income. Essentially, the other trusts

served as conduits through which the Muhichs

transferred money back to Midwest and themselves.

/8 Constructive dividends, or dividends in law,

occur when a corporation confers an economic

benefit upon a shareholder, in his capacity as

such, without an expectation of reimbursement.

That economic benefit becomes a constructive

dividend, taxable to the respective shareholder.

/9 "Personal consumption expenses must obviously be

treated as nondeductible on the whole; if they

were allowed, the individual tax base could be

reduced to zero through expenditures on personal

living items and the notion of a tax on economic

gain would have to be abandoned." M. Chirelstein,

Federal Income Taxation P 7.01 at 140 (2d ed.

1979). Apart from some special provisions, id.,

not at issue here, deductions must be for

ordinary and necessary business expenses (Section

162) and costs associated with investment

activities (Section 212).

/10 The Muhichs’ two remaining contentions on appeal,

that the Tax Court’s decision to impose penalties

under I.R.C. sec. 6662(a) as well as the decision

to deny certain deductions were erroneous, are

comprised, in total, of approximately one page of

double-spaced text. Instead of any detailed

argument, the petitioners claim that "substantial

authority exists" to support their claim and that

"a review of the entire record" would establish

the merit of their arguments. As we have

repeatedly stated, "[i]t is not this court’s

responsibility to research and construct the
parties’ arguments." United States v. Lanzotti,

205 F.3d 951, 957 (7th Cir. 2000). Where, as

here, a party fails to develop the factual basis

of a claim on appeal and, instead, merely draws

and relies upon bare conclusions, the argument is

deemed waived. Bonds v. Coca-Cola Company, 806

F.2d 1324, 1328 (7th Cir. 1986) (citing Morgan v.

South Bend Community School Corp., 797 F.2d 471,

480 (7th Cir. 1986)); see, e.g., Gagan v.

American Cablevision, Inc., 77 F.3d 951, 965 (7th

Cir. 1996) (failure to cite any factual or legal

basis for an argument waives it); Bratton v.

Roadway Package Sys., Inc., 77 F.3d 168, 173 n.

1 (7th Cir. 1996) (argument that is not developed

in any meaningful way is waived); Freeman United

Coal Mining Co. v. Office of Workers’

Compensation Programs, Benefits Review Bd., 957

F.2d 302, 305 (7th Cir. 1992) (there is "no

obligation to consider an issue that is merely

raised [on appeal], but not developed, in a

party’s brief"); United States v. Haddon, 927

F.2d 942, 956 (7th Cir. 1991) ("A skeletal

’argument’, really nothing more than an

assertion, does not preserve a claim [for

appellate review]."); United States v. Berkowitz,

927 F.2d 1376, 1384 (7th Cir. 1991) ("We

repeatedly have made clear that perfunctory and

undeveloped arguments . . . are waived . . . .").

Additionally, these claims are plainly without

merit. Consequently, these arguments are waived

and we do not consider them any further.