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Third, petitioner controlled the disposition of and
benefited from the partnership distributions. For example,
petitioner owed Smith about $41,000 from his Redlands
representation, and he used the 1996 and 1998 partnership
distributions ($5,146.25 from the Kansas farm and $10,292.50 from
the Riverside property) to reduce his debt to Smith. In 1999,
the partnership distributed checks in the amounts of $75,747.60
and $1,118.75, both jointly payable to petitioners’ children.
Both checks were endorsed to O’Leary who deposited them in his
investment account. O’Leary then paid $55,615.64 of this money
to petitioner as a purported loan from his children, and he kept
the rest. Petitioner treated the partnership distributions as if
they were his, and he told Smith that they were his.
Fourth, petitioners reported the partnership loss on their
1998 return, which is an admission that petitioner, and not his
children, owned the partnership interest. See Waring v.
Commissioner, 412 F.2d 800, 801 (3d Cir. 1969), affg. per curiam
T.C. Memo 1968-126.
For these reasons, we do not recognize petitioner’s transfer
of his Anis partnership interest to his children for Federal
income tax purposes. Estate of Sanford v. Commissioner, 308 U.S.
39 (1939); sec. 25.2511-2(b), (g)(1), Gift Tax Regs. Thus,
petitioners are taxable on the distributions from the Anis
partnership in 1998 and 1999.
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