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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.
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