## Facts

- Dr. Bruce Holman and Audrey B. Holman created the “Bruce Holman Family Estate” trust, intending it to hold their personal and real property and to acquire the exclusive right to Dr. Holman’s services and future earnings.
- Dr. Holman, Mrs. Holman, and Dr. Holman’s mother initially served as trustees; the mother resigned after about five months, leaving only the Holmans as trustees.
- The Holmans were also designated as trust “officers” entitled to receive consulting fees; beneficiaries included the Holmans, their children, and an educational/research trust.
- Trustees had broad discretionary authority over distributions, could set and pay their own compensation as trustees, and could terminate the trust early by unanimous decision.
- After formation, the Holmans continued using their property as before; the trust paid personal living expenses, including housing-related payments, utilities, automobile costs, and other miscellaneous expenses.
- The trust filed an income tax return reporting Dr. Holman’s medical-practice earnings and deducting amounts characterized as consulting fees to the Holmans and other expenses.
- The IRS declined to recognize the trust for income-tax purposes, increased the Holmans’ personal taxable income by amounts reported by the trust, and assessed deficiencies, interest, and negligence penalties.
- The Holmans paid and sued for a refund; the district court granted summary judgment for the United States, and the Holmans appealed.

## Issues

1. Whether the trust should be respected as a separate taxpayer so that Dr. Holman’s professional income reported by the trust was not taxable to the Holmans.
2. Whether, under grantor-trust rules, the Holmans retained sufficient control or beneficial enjoyment of trust property and income to be treated as owners for federal income-tax purposes.
3. Whether the arrangement constituted an anticipatory assignment of income, making Dr. Holman’s earnings taxable to him despite routing them through the trust.
4. Whether either spouse qualified as an “adverse party” to the other in a manner that would prevent grantor-trust attribution.

## Decision

- The court of appeals affirmed summary judgment for the United States and denied the refund.
- The trust was disregarded for income-tax purposes; the income attributed to the trust was taxable to the Holmans (including Dr. Holman as the earner/grantor).
- The court rejected the argument that the spouses were “adverse parties” because their interests and roles (trustees, officers, and beneficiaries) aligned and did not meaningfully restrain control.
- The undisputed terms and operation of the trust showed no genuine issue of material fact; the government was entitled to judgment as a matter of law.

## Legal Principles

- Federal income taxation follows economic reality; a trust may be disregarded where the grantor retains control and beneficial enjoyment sufficient to trigger grantor-trust attribution.
- Broad trustee powers retained by the grantor (including discretion over distributions and self-compensation) support treating the grantor as the owner of trust property and income for tax purposes.
- Family members are not “adverse parties” when their economic interests are aligned and they lack meaningful incentives to oppose the grantor’s control.
- Under the assignment-of-income doctrine, income is taxed to the person who earns it; anticipated earnings cannot be shifted to another taxpayer by formal assignments lacking substantive change in control or benefit.
- Payment of personal living expenses from a purported trust is evidence that the arrangement functions as a conduit for the taxpayer’s own income rather than an independent economic entity.

## Conclusion

The court held that routing a physician’s earnings through a family trust did not shift the tax burden where the taxpayers retained control and continued to enjoy the income’s benefits; the trust was disregarded, and the income remained taxable to the Holmans under grantor-trust and assignment-of-income principles.


Holman v. United States, 728 F.2d 462 (10th Cir. 1984)