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FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulations of facts and attached exhibits are incorporated
herein by this reference. Petitioner's principal place of
business was in Durand, Michigan, when it petitioned the Court.
Petitioner filed a Form 1120, U.S. Corporation Income Tax Return,
for each year in issue using a fiscal year ended August 31 and an
accrual method of accounting. The 1988, 1989, and 1990
Forms 1120 were filed on August 15, 1991, March 6, 1992, and
July 17, 1992, respectively.
Petitioner was incorporated on August 24, 1977, to purchase
real property and to lease this property primarily to businesses
engaged in adult entertainment. From its incorporation through
August 31, 1988, petitioner was a wholly owned subsidiary of
Dynamic Industries, Ltd. (Dynamic). During the subject years,
Mr. Mohney owned all of petitioner's voting stock, and he was its
president. At all times relevant herein, petitioner was a member
of an organization of over 50 businesses that were engaged in the
adult entertainment industry. All of these businesses were
wholly or partially owned by Mr. Mohney, either directly or
indirectly through various trusts.
In 1966, Mr. Mohney had started acquiring (and operating as
sole proprietorships) numerous enterprises that were primarily
engaged in adult entertainment. The assets of these enterprises
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