Ray W. and Marilyn S. Sowards - Page 19

                                       - 19 -                                         
          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...)           




Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011