- 27 - trust or by the law of trusts. See Markosian v. Commissioner, supra at 1243-1245. Here, Mr. Sowards’s relationship to the property purportedly transferred to the trust was not changed by virtue of the creation of WPA. The record demonstrates that despite being named the sole trustee of WPA, Ms. Morris had no further involvement with WPA after its creation. Mr. Sowards had sole control over WPA’s bank account. The only “operations” in which WPA engaged were the receipt and payment of moneys. No economic interest was transferred to WPA’s beneficiaries. Indeed, the purported beneficiaries had no knowledge of their interest in WPA. Furthermore, Mr. Sowards admitted at trial that WPA “was never used as a trust.” We find that WPA was simply a paper entity wholly without economic substance. See Paulson v. Commissioner, supra; Chase v. Commissioner, 926 F.2d 737 (8th Cir. 1991), affg. T.C. Memo. 1990-164. C. Schedules C - Deductions for Expenses In the notice of deficiency, respondent disallowed all petitioners’ Schedules C expense deductions for want of adequate substantiation.31 Mr. Sowards testified that he in fact incurred the expenses listed on the 1996 Schedule C for his wife’s 31Respondent disallowed deductions from the Schedules C for 1996 and 1997 for Mr. Sowards’s law practice. Additionally, respondent disallowed deductions from the 1996 Schedule C for his wife’s purported organizational consulting business.Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Next
Last modified: May 25, 2011