Ruling requests about purported Social Security trusts refused

Plain-English summary

Chief Counsel's advice addresses two nearly identical requests about purported trusts allegedly created when the Social Security Administration issued social security cards. The requesters claimed to serve as trustees and said the trusts performed services and held ownership interests for a company. The memorandum states that the Service would refuse to issue the requested rulings under Rev. Proc. 2011-1 and identifies the arrangements as potentially abusive or sham trusts because the taxpayers may retain control over the assets. It recommends that the relevant office consider examining the requesters' returns.

Ruling snapshot

• Question: Should the Service issue rulings about the tax treatment and filing requirements of purported trusts allegedly created by the Social Security Administration?
• Outcome: Advice given
• Key authorities: Rev. Proc. 2011-1, § 6.10; Notice 97-24; Zmuda v. Commissioner, 79 T.C. 714 (1982), aff'd, 731 F.2d 1417 (1984); Markosian v. Commissioner, 73 T.C. 1235 (1980); Zachman v. Commissioner, T.C. Memo 1999-391 (1999)

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201220027
       Release Date: 5/18/2012
       CC:PSI:2                                          Third Party Communication: None
       POSTN-105364-12                                   Date of Communication: Not Applicable

UILC: 9300.99-07

date: February 07, 2012

 to:   Constance Allison
       (IRS, PSP, Western Area)

from: Bradford Poston
(CC:PSI:2)

subject: A, B

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.

       LEGEND

       A      = -------------------------------------------------------------------------------------------------------
                -------------------------

       B      = -------------------------------------------------------------------------------------------------------
                -------------------------

       X      = -----------------------------

       Year = -------

              We are notifying you of our refusal to issue the rulings requested by the above-
       captioned taxpayers pursuant to § 6.10 of Rev. Proc. 2011-1.

              A and B have each submitted a private letter ruling request to determine the
       specific tax laws applicable to trusts that they purport to have been created by the
       Social Security Administration (SSA).

              A and B assert that the SSA created trusts in their names with each of them as
       trustee for the benefit of the US government. They each provided a nearly identical

POSTN-105364-12 2

instrument entitled “Simple Social Security Trust.” Each trust instrument states that it
was created when SSA issued social security cards in each of their names. The
instruments also state that A and B are “Stewards in the Kingdom of Israel” that provide
“the consciousness and physical capacity” for the trusts. After making FICA payments,
any net income may be held, invested, used as fiduciary fees, or distributed to its
“Steward.”

   In their ruling requests, A and B represent that the “trusts” contracted to perform

services for X, and that each trust also controls two units of ownership interest in X.
The “trusts” were paid for services in connection with the contract with X in Year.
However, A and B state that they are unable to determine the proper income tax
treatment or filing requirements for the trusts.

   We have attached copies of A’s and B’s correspondence with this office,

including two documents entitled “Simple Social Security Trust.”

   This situation appears to be an “abusive trust arrangement” as described in

Notice 97-24, 1997-1 C.B. 409, in which the taxpayer attempts to minimize income
taxation by transferring assets to a trust with no meaningful change in the taxpayer’s
control over the assets. See also Zmuda v. Commissioner, 79 T.C. 714 (1982), aff’d.
731 F.2d 1417 (1984); Markosian v. Commissioner, 73 T.C. 1235 (1980). The Service
has won several cases involving such “sham trusts.” See Zachman v. Commissioner,
T.C. Memo 1999-391 (1999). Accordingly, your office may wish to examine the returns
of A and B to determine whether these arrangements constitute “sham trusts.”

    In addition to the attachments mentioned above, we are including a copy of the

letter which this office is sending to A and B. Copies of this memorandum and the
supporting documentation are also being provided to the Office of Division Counsel,
Associate Chief Counsel (Criminal Tax).

Please call (202) 622-3060 if you have any further questions.