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deposited into the client trust account had not been earned by
the law firm. Funds in the client trust account did not affect
the law firm’s income or expenses, and had no tax significance,
as they were client funds held in trust.
All business income was to be deposited into, and all
business expenses were to be paid out of, the general operating
account. This allowed Mr. Reiter and his staff to “pick up” the
income and expenses of the law firm. This included distributions
from the client trust account to the law firm. As fees were
earned they were to be distributed to the law firm from the
client trust account and deposited in the general operating
account. Petitioner gave her employees instructions on how to
distribute funds from her cases and regarding the disbursement
sheet for the client trust account.
Petitioner or Mr. Ludlow had to sign checks for business
expenses. During the years in issue, only petitioner and Mr.
Ludlow had signatory authority on the general operating account
and the client trust account.
Under Mr. Reiter’s accounting system for the law firm,
income of the law firm not deposited into the general operating
account was not picked up as income. Mr. Reiter’s system was
explained to petitioner, Mr. Ludlow, and the employees of the law
firm. Mr. Reiter’s staff also knew how the accounting system
worked.
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Last modified: May 25, 2011