Ray W. and Marilyn S. Sowards - Page 27

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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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