Worthington Group constructs Unincorporated Organizations (Business Trusts) by 'Contract Law" pursuant to Treasury Regulation §301.7701-(2)(3)(4)(b) and the United States Constitution, Article I, Section X.

Some of the significant advantages to Common Law 'Contract Trusts' are:

7) Business Organization,

and many other benefits too numerous to list. Your future planning using 'Contract Trusts' may only be limited to your lack of knowledge and your own imagination.

I. Confirming the Trust Contract

A) "Certificate holders are devoid of legal rights, have no officers, are and must remain forever mute as to the selection, approval or disapproval of the trustees and their methods of conduct of business affairs would make the trustee absolute owner" Bourchard v. First People's Trust, 253 Mas 351, 148 NE 895

B) "Right to Contract": Schumman-Heink v. Folsom, 159 NE 250. (1927)

C) "United States Supreme Court has long held and recognized that freedom to make contracts and have them enforced by the courts is a part of the bundle of rights protected by the "due process" clauses of both the Fifth and Fourteenth Amendments". Patterson v. Bank Eudora (1903) 190 US 169, 47 L Ed 1002, 23 S Ct 821; Muller v. Oregon, 208 US 412, 52 L Ed 551, 38 S Ct 324 (1908); Frisbie v. U.S. 157 US 160, 39 L Ed 657, 15 S Ct 586 (1895)

D) "The trust contract is established by private parties, for personal purposes, is not registered with the state corporation commissioner to comply with statutes relating to incorporating and does not invalidate the trust organization". Hodgkiss v. Northland Petroleum Consolidated, 104 Mont 328, 67 P 2d 811

E) "Certificate holders of a Trust Contract enjoy an even greater immunity from personal liability than is accorded to stockholders of corporations". Goldwater v. Oltman, 210 Cal 408, 292 P624, 71 ALR 871

F) "One of the main objectives of a trust contract is to obtain most of the advantages of corporations, but with freedom from the burdens, restrictions, and regulations generally imposed upon them". Ashworth v. Hagen Estates, 165 Va 151, 181 SE 381

G) "The United States Supreme Court has acknowledged the trust contract as a "pure or true trust," citing the Hecht case in Navarro v. Lee. Hecht v. Malley, 265 US 144 (1924); Navarro v. Lee, 446 US 458 (1980)

H) Business trusts are found in Corpus Juris Secundum and American Jurisprudence, 2d.

I) "Business trusts are recognized under the term "common law trust" 88 American Law reports 3d 704, citing Schumann-Heink v. Folsom, 328 Ill 321, 159 NE 250, 50 ALR 485 (1927).

J) "Probate is cash demands on an estate". Internal Revenue Code 2042

K) "A Trust is one of several juridical devices whereby one person is enabled to deal with property for the benefit of another person".

II. CONTRACT TRUST RECOGNIZED BY IRS:

A) Internal Revenue Regulations acknowledgement of Contract Trust Organization. Treasury Regulation 301.7701-4 (b); Berry v. McCourt, 204 NE 2d 235, 240

(b) Business Trusts - "there are other arrangements known as trusts because the legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Internal Revenue Code", "because they are not simply arrangements to protect and conserve the property for the beneficiaries."

Text by Worthington Group:

The trustees may adopt a management contract and authorize through the contract the hiring of a manager, assistant manager, secretary, etc., to perform certain duties in the daily operation of the 'Business Trust'(end of text).

B) "An "exchange" is a reciprocal transfer of property as distinguished from the transfer of property for money or consideration only". Treasury Regulation 118, 39.112(a) 1, (e)

C) "The owner of Beneficial Certificates is not an owner as a stockholder is an owner; that Certificate Holders have no ownership whatever in property held by the Contract Trust, nor do they have any voice or control over the Trustees". Becker v. St. Louis Union Trust Co., 296 US 48, 50; 80 L Ed 35; 56 S Ct 78

III. NO GIFT OR ESTATE TAXES:

A) "Certificates have no ascertainable "Fair Market Value", and have minimal value to someone else. Bad bargains do not result in taxable gifts". "Contract Trust is a genuine business transaction". Estate of Anderson v. Commissioner of Internal Revenue, 8 Tax Court 706.721

In Parker v Mona-Marie Trust, 278 SE 321 state:

" Certificates are personal property and convey no interest in the Trust Property" (How can one sell what they have no interest in?)

and; Goodhue v State St. Trust Co, 267 Mass 28 state:

" Certificates are not chattels but evidences of intangible rights".

and; Knowlton v Moore, 178 US 41, 20 S.Ct 747, 44 L Ed 969 (1900); YMCA v Davis, 264 US 47 (1924), 44 S Ct 291, 68 L Ed 564; Goodman v Granger, 243 F 2d 264 (1957); Babb v US, 349 F. Supp 792 (1972) state:

" Interests which terminate 'on' or 'before' death are not a proper subject of the Federal Estate Tax".

In Bouchard v People's Trust, 253 Mass 351, 148 NE 895 state:

" Certificate holders are devoid of legal rights, have no officers, are and must remain forever mute as to selection, approval or disapproval of the trustees and their methods to conduct business affairs would make the trustee the absolute owner"

and; Goldwater v Oltman, 210 Cal 408, 292 P 624, 71 ALR 871 state:

" Certificate holders of a trust contract enjoy an even greater immunity from personal liability than is accorded to stockholders of corporations".

and; U S v Merriam, 263 US 179 (1923); Gould v Gould, US 151; Commissioner v Harrelson, 282 US 55 (1930) state:

" No equitable construction of a tax statute, Code must be strictly construed as gain measured from 'Fair Market Value' of property received".

and; Brigham v US, D.C. Mass. 1941, 38 F. Supp 625, appeal dismissed 122 F 2d 792 state:

" A trust ia a separate and distinct entity from its beneficiaries for income tax purposes".

and; Lucas v Earl, 281 US 111 (1930) state:

" Tax can only be shifted where the 'tree' (income) is conveyed. Mere anticipatory assignment is not good enough".

IV. NO CAPITAL GAINS TAX:

A) "If a bona fide transfer, sale or exchange is made at arm's length in the ordinary course of business, the transaction will be assumed to be for consideration and not gratuitous. A consideration that is not reducible to a value in money or money's worth, i.e., love and affection or promise of marriage, is to be wholly disregarded and considered totally gratuitous". Internal Revenue Service "Federal Estate and Gift Taxation Publication", #488

B) The United States Circuit Court of Appeals for the First Circuit has long held "that full and adequate consideration is met by issuance of trust certificate units in exchange for real and personal property invested in a "pure" trust organization" .Carpenter v. White, CIR, 80 F 2d 145

C) "The measure of the gain . . . of an exchange is the difference between the (adjusted) costs, basis of the property transferred . . . and the fair market value of the property . . . received". Internal Revenue Code 101 (a), (b); Parrington v. Attorney General, LR.H.L. 100, 122

D) "No "Equitable Construction" of a tax statute, Code must be strictly construed". "Gain measured from fair market value of property received". U.S. v. Merriam, 263 US 179 (1923); Commissioner v. Harrelson, 282 US 55 (1930). Gould v. Gould, US 151

E) "The "fair market value" is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having knowledge of all the relevant facts. It may not be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public". Federal Estate and Gift Taxation, Publication No. 448; Davis v. U.S., (1961) 287 F 2d 168, 82 S Ct 805, affirmed in part and reversed in part on other grounds, 370 US 65, 82 S Ct 1190, 8 L Ed 335. Rehearing denied 371 US 854, 83 S Ct 14, 15

F) Section 111(b) requires "that the capital gain be measured by "the fair market value" of the property received (emphasis added) by the taxpayer, not by the fair market value transferred by the taxpayer in exchange for the property received". "To say that the fair market value of the property received is the same as the fair market value of the property given up not only ignores realities, but is the use of a formula which is radically different from the recognized formula approved by the courts for determining fair market value". Commissioner v. Marshman, 279 F 2d 27, Cert. den. 364 US 918, 8 S Ct 282, 286; 5 L Ed 2d 259, Maxfield v. U.S., 152 F 2d 593, Cert. den, 2 Cases 327 US 791, 66 S Ct 821, 90

G) This definition primarily benefits the Treasury in estate tax situations. However, "IRS may not have one definition for "fair market value" at one time when it is beneficial, and a different one for another time when the benefit goes to the taxpayer". "The IRS is obliged to keep their conclusion that the fair market value of valuable beneficial units cannot be determined in any forum other than a voluntary sale".

"The IRS may not force a sale to determine price where the item displays an inherent yet unsettled value. They may also not force the beneficial units to be sold in a market other than that in which such certificates may commonly be sold to the public. In addition, when the Treasury say "public," they mean at retail rather than wholesale. The value of above definition is evident in the point that the client may plan affairs around hard and fast rules not subject to change". Federal Estate and Gift Taxation, Publication No. 448, p. 39 Burnet v. Logan, 283 US 404, 51 S Ct. 75 LED 1143 (1931)

H) "Interests which terminate "on" or "before" death are not a proper subject of the Federal Estate Tax". Knowlton v. Moore, 178 US 41, 20 S Ct 747, 44 L Ed 969 (1900); YMCA v. Davis, 264 US 47 (1924), 44 S Ct 291, 68 L Ed 564; Goodman v. Granger, 243 F 2d 264 (1957); Babb v. US, 349 F Supp 792 (1972)

V. CONTRACT TRUST AS A LEGAL ENTITY:

A) "The Contract Trust owns the property and is a distinct legal entity". "Beneficial Certificate Holders are not treated as co-owners of trust property". National City Finance v. Lewis (Cal App), 3P 2d 316 (Rehearing denied) 4 P2d 163; Beilin v. Krenn & Dato, 350 111 284, 183 NE 330; Hemphil v. Orloff, 238 Mich 508, 213 NW 867, 58 ALR 507, affd 277 US 537, 72 L Ed 978, 48 S Ct 577. Annotation 156 ALR 32. Goldwater v. Oltman, 210 Cal 408; 292 P 624

B) "The Contract Trust does not escape the necessity of having substance and business motives. "Sham" transactions, having no economic effect other than the creation of income tax losses, cannot be recognized for tax purposes". Thompson v. Commissioner, 631 F 2d 642, 646 (1980) Cert. Denied, 452 US 961 (1981) Edwards v. Commissioner, 415 F 2d 578, 582 Lewis and Talor Inc. v. Commissioner, 447 F 2d 1074 (1971)

C) "The fact that transactions of business are so arranged that tax consequences are highly favorable (or altogether avoid taxes) affords no license to the government to recast it into a mold of less advantage". Gyro Engineering, Inc. v. US, F 2d 578, 582 Peter Pan Seafoods, Inc. v. US, 417 F 2d 670

VI. LEGAL AND EQUITABLE TITLE HELD BY CONTRACT TRUST:

A) "Legal and equitable title held by contract trust". Hecht v. Malley, US 144, 68 L Ed 949, 44 Ct 462 Williams v. Milton, 215 MASS 2, 102 NE 355 Goldwater v. Oltman, 210 CA 148, 292 P624, 71 ALR 871 Schumann-Heink v. Folsom, 328 III 321, 159 NE 250, 58 ALR 871

B) "When legal and equitable title, possession and control of property are legally and irrevocably passed from the Trustor (contracting investor) to himself as Trustee in legal contemplation, it is as though the Trustee receiving the conveyance is another person". Commissioner of Internal Revenue v. St. Louis Union Trust Co., 296 US 48, 50 (1935)

C) "Property invested in the Contract Trust Organization must be fixed and irrevocable. Thus the Trustor (contraction investor) may legally be recognized as a different person even when de facto he/she may be the same human being. Trusteeship is a position created by parties at arm's length which when established is an office to be occupied by any qualified person". Becker, Collector of Internal Revenue v. St. Louis Union Trust Co., 296 US 48, 50, 50: 80 L Ed 35, 56 S Ct 78

D) "Genuine contractual obligations control the substance". Estate of Hilto N. Goodwyn, T.C. Memo 1976-238

E) "Trustees of the Contractual Trust have the exclusive power to interpret or construe the intent and direction of the Trust Indenture". Cohen v. US Trust Securities Corporation, 40 NE 2d 282

F) "Statutes may authorize limited liability of partnerships and corporations, but those statutes do not by implication prohibit the creation of Contract Trusts to enjoy similar immunity by virtue of the Common Law". Goldwater v. Oltman, 292 P 624, 71 ALR 871 Annotation

G) "In tax context, "Associated" relates to a joint action and interest of the stock holders and their directors. Contract Trust Trustees and Beneficiaries are not associated in a joint action". Elm Street Realty Trust, 76 TC No. 68 (1981); Morrissey v. CIR, 296 US 34 (1935); Crocker v. Malley, 249 US 223 (1919); Internal Revenue Regulations 301.7701-1, 2 (a) (2); Schumann-Heink v. Folsom, 159 NE 250, annotation 58 ALR 485; Hecht v. Malley, 265 US 144

H) IRS Regulations state the term "Person" includes an "Unincorporated Organization or Group". Treasury Regulation 301.7701-1 (a); Internal Revenue Ruling 73-254

I) "It is whether the entities were taxable as associations with the corporation rates applied, or as trusts (with the conduit method applied)". Commissioner v. Brouillard, 70 F 2d 154, 157, Cert. denied 293 US 574 No. 152; Commissioner v. Brouillard, 70 F 2d 154, Cert. denied 293 US 574 No. 152

J) The United States Supreme Court articulated what has become recognized as the standard for determining whether an entity will be taxed as a corporation or as a trust by saying "that it's the nature of the entity's dominant functions and attributes which determines whether it is an association for tax purposes". "The system and course of procedure approximates much more closely that of an ordinary partnership among personal friends reposing "full confidence" (Pure trust thus a Contract Trust) in each other. The resemblances predominate strongly in favor of a trust. Consequently, the entities should have been taxed as trusts, not associations". Commissioner of Internal Revenue v. Brouillard, Same v. Shepherd Syndicate, and Same v. Pryor & Lockhart Development Co., 70 F 2d 154, Cert. den. 293 US 574 No. 152, Hemphil v. Orloff, 277 US 537, 48 S Ct 277, 72 L Ed 978 cited Brouillard Ibid

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