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adjustments, and charged petitioner with the fraud addition to tax
for each year.
Respondent’s adjustments and the capacity in which various
funds, bank deposits, and stock were received by petitioner, whether
they constitute taxable income to petitioner, the deductibility of
the disputed deductions, and respondent’s imposition of the fraud
addition to tax are the subject of much confusion and disagreement
between the parties. Certain items of income and deductions have
been conceded. Also, petitioner now claims additional deductions
that were not reflected on his Federal income tax returns and that
were not properly raised in his pleadings.
FINDINGS OF FACT
When the petitions were filed, petitioner resided in Houston,
Texas.
During the years in issue, petitioner practiced law primarily as
a litigation specialist, and petitioner owned and operated in
Houston, Texas, a law firm under the name of Payne & Associates.
Petitioner provided extensive legal representation to and eventually
managed, controlled, and owned the stock of 2618, Inc. (2618 Inc) a
corporation that owned and operated in Houston, Texas, a topless
dance club under the name of Caligula XXI (the Club).
During part of the years in issue, Gerhard Helmle (Helmle) owned
50 percent of the stock of 2618 Inc, and he assisted in managing
operations of the Club. Petitioner also provided legal
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