Opinion ID: 782888
Heading Depth: 4
Heading Rank: 3

Heading: Kanter was the grantor of BRT

Text: 66 Although Kanter argues principally that the Commissioner should have borne the burden of proving that Kanter was the grantor and owner of BRT, and that the Commissioner could not meet that burden, Kanter maintains that, regardless of burden, he is not taxable on BRT's income under the IRC's grantor trust provisions. A finding of grantor status is a factual finding that we review for clear error. Scott v. Comm'r, 226 F.3d 871, 874 (7th Cir.2000). Kanter has failed to show that the Tax Court's decision was clearly erroneous. 67 Despite the trust document's showing that Beatrice Ritch was the grantor of BRT, the familiar principle of substance over form views as the true grantor the one who principally funded the trusts. Schulz v. Comm'r, 686 F.2d 490, 496 (7th Cir.1982); United States v. Buttorff, 761 F.2d 1056, 1060-61 (5th Cir.1985). In Schulz, for example, the petitioner's wife was considered the grantor of a family trust because both the Commissioner and this court disregarded the conveyance of the wife's assets, which were subsequently used to fund the trust in question, to the petitioner. 686 F.2d at 496. The wife, in substance, provided the funds for the trust, and the form of the funding, by routing the funds through the petitioner, was ignored. Similarly, although Kanter was not listed in the trust document as a grantor, and, even if Beatrice Ritch actually did contribute $100 towards the funding of each BRT trust, there is evidence that Kanter contributed to BRT income and assets he earned, to substantially fund the twenty-five trusts. 68 The Tax Court found that Kanter transferred to BRT income and assets associated with his services in the Cablevision transactions as well as others. IRA, 78 T.C.M. (CCH) at 1098. Kanter provided no evidence (other than the trust document itself) to show that Beatrice Ritch actually funded the trusts nor any evidence to show from whence the substantial assets owned by BRT originated. Kanter's assertion that he merely ceded investment opportunities in Cablevision to BRT does nothing to undermine the Tax Court's findings and, further, depends on his credibility, which the court found to be lacking. Because Kanter was the principal source of the funding of BRT, he is deemed a grantor of BRT. See 26 C.F.R. § 1.671-2(e)(1) ([A] grantor includes any person to the extent such person either creates a trust, or directly or indirectly makes a gratuitous transfer ... of property to a trust.... If a person creates or funds a trust on behalf of another person, both persons are treated as grantors of the trust.). 69 Kanter argues that the Tax Court's finding that he was the grantor is directly contrary to an Illinois trial court decision, in which the Cook County Circuit Court determined that the Cablevision partnership interests did not constitute property of Kanter's law firm because they did not result from payment of fees for legal services. Statland v. Levenfeld, No. 84 CH 6494 (Ill.Cir.Ct., Ch. Jan. 28, 1988). Kanter argues that (a) the state court ruling stands for the proposition that the Cablevision partnership interests were not in payment for any services (not just legal services) but were rather investments and (b) the state court ruling is determinative and binding on the matter. Kanter overstates the holding of the cited case. The case involved a former law partner of Kanter, who alleged that the Cablevision partnership interests were the property of the partnership because they were provided in payment for legal services. The Illinois court disagreed and held that the Cablevision partnership interests were not the product of legal fees paid to Kanter's law firm. The court did not hold, however, that the Cablevision partnership interests were not in payment of fees for services furnished by individual law firm partners in securing financing and investors for Cablevision, which is what the Commissioner alleges here. The trial court did, at various times, refer to the Cablevision partnership interests as individual investments, but it also spoke of the activities of Kanter and his partners in working to obtain financing and investors for Cablevision. None of these dicta contradicts the position of the Commissioner nor renders the factual findings of the Tax Court clearly erroneous.