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same amounts and to the same payees. Petitioners’ children gave
him the money they received from the Anis partnership.
The Anis partnership filed Forms 1065, U.S. Partnership
Return of Income, for tax years 1995 through 1999. The Anis
partnership issued Schedules K-1, Partner’s Share of Income,
Deductions, Credits, etc., for 1995 to Drew Graham and Allison
Graham. The Schedules K-1 indicated that the partnership had
allocated an ordinary loss of $1,120 to each.
In May 1996, the partnership sold its interest in the Kansas
farm and distributed the proceeds to the Anis partners.
Petitioner authorized Smith to apply his children’s 22.375-
percent share ($5,146.25) from the sale of the Kansas farm
against the attorney’s fees petitioner owed to Smith for
representing him in the Redlands litigation. He told Smith the
partnership funds being distributed were petitioner’s funds.
For 1998, on Schedules K-1 it issued to Drew and Allison
Graham, the partnership allocated to each of them income of
$2,461, consisting of an ordinary loss of $336 and a capital gain
of $2,797.
Petitioner told Smith that he would fully pay his attorney’s
fees when the Anis partnership sold the Riverside property. The
Anis partnership sold the Riverside property and received a
payment of $50,000 in December 1998. In a letter dated December
28, 1998, Smith allocated the $50,000 as follows: Nick Anis
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