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nontaxable. The only contested deposit that respondent did not
deduct as a nontaxable item was a $3,000 payment from Mr.
Sowards’s “client trust” bank account to his wife.21 The check
to Ms. Sowards states “paralegal service” on the memo line.
Given the fact that this check is from another account
related to Mr. Sowards’s law practice ostensibly payable to his
wife for paralegal services and Mr. Sowards admitted that he
falsely reported his income on a Schedule C for a fabricated
organizational consulting business in his wife’s name, it can be
inferred that this check represents legal fees earned by Mr.
Sowards which were diverted to his wife. On the basis of the
entire record, including Mr. Sowards’s consistent failure to
report income from STL (see infra), we find there is clear and
convincing evidence that petitioners had additional taxable
income of $7,275 in 1997.22
21Apparently, in addition to a law firm “operating” bank
account, which was the subject of the 1997 bank deposits
analysis, Mr. Sowards maintained a “client trust” bank account.
Check no. 142 made payable to petitioner “Marilyn Sowards” dated
Dec. 13, 1997, for $3,000, was drawn against an account at U.S.
Bank, account No. 9280006496, which was held in the name of “Ray
Sowards Atty. Attorney Client Trust Account”.
22The amount respondent determined in the notice of
deficiency as additional, unreported income is $7,725. However,
on brief, respondent lists the amount as $7,275. It appears that
the amount stated in the notice of deficiency suffers from a
scrivener’s error. The total amount deposited into this bank
account in 1997 was $43,557.37. Respondent identified and
subtracted nontaxable items of $12,707. The difference results
in net taxable deposits of $30,850.37. Petitioners reported
(continued...)
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