Paul F. and Eleanore M. Nichols - Page 4




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          of PERJ Trust.  They stated further that PERJ Trust is revocable            
          at their discretion.                                                        
               On July 25, 1995, petitioners signed a “Uniform Residential            
          Loan Application”.  In the loan application, Mr. Nichols stated             
          that he had been self-employed for 19 years as the owner-operator           
          of a sweeping business doing business as Clean Sweep Maintenance.           
          Petitioners also listed their personal checking and savings                 
          accounts.  Those same accounts were the bank accounts of CSM                
          Trust, JREP Trust, and PERJ Trust.  During 1997 and 1998,                   
          petitioners were the only persons who had signatory authority               
          over those bank accounts.                                                   
               CSM Trust filed partnership returns for 1997 and 1998.3                
          PERJ Trust was indicated as a partner holding a 99-percent profit           
          interest in CSM Trust, and Ms. Nichols was said to be a partner             
          holding a 1-percent profit interest in CSM Trust.  Those returns            
          were filed under the same employer identification number as had             
          been used on the trust income tax returns filed in the name of              
          CSM Trust for taxable years before 1997.                                    
               On their 1997 and 1998 Federal income tax returns,                     
          petitioners understated their interest income by $25 and $45,               
          respectively.  Petitioners also did not report Social Security              




               3 The record does not indicate why CSM Trust filed                     
          partnership returns for those years.                                        





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