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$27,000, Al Graham $10,292.50, Tammy Smith $2,773.29, and Steve
Smith $9,934.21. Smith applied petitioner’s $10,292.50 share of
the distribution against the attorney’s fees petitioner owed him.
Smith wrote a check to himself for that amount. In January 1999,
petitioner told Smith not to apply any future partnership
distributions to petitioner’s debt to Smith.
Escrow on the sale of the partnership’s interest in the
Riverside property closed on February 18, 1999. Additional funds
were distributed to the partners, including checks dated March 1,
1999, in the amounts of $75,747.60 and $1,118.75, both jointly
payable to Drew and Allison Graham. Drew and Allison Graham
endorsed both checks to O’Leary. O’Leary deposited the two
checks in his investment account at A.G. Edwards and Sons Inc.
O’Leary then wrote a $55,615.64 check from his Merrill Lynch cash
management account to petitioner, and that check was deposited in
petitioner’s law firm’s business account and recorded on the
books as a loan to petitioner from his children.
The Anis partnership allocated ordinary income of $4,564 to
Drew Graham and $4,563 to Allison Graham on Schedules K-1 issued
to them for 1999.
6. Petitioner’s Diversions of Business Income
a. Diversions of Income Through Edgar
Petitioner and Edgar did not deposit some client payments in
the law firm’s business account. Petitioner sometimes told Edgar
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