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herein by this reference. Petitioner's principal place of
business was in Lansing, Michigan, when it petitioned the Court.
It filed a Form 1120, U.S. Corporation Income Tax Return, for
each year in issue using a fiscal year ended May 31 and an
accrual method of accounting. Its 1989, 1990, and 1991
Forms 1120 were filed on October 15, 1991, February 27, 1992, and
January 19, 1993, respectively.
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 Harry V. Mohney (Mr. Mohney) either directly
or indirectly through various trusts.
In 1966, Mr. Mohney began acquiring (and operating as sole
proprietorships) numerous enterprises that were primarily engaged
in adult entertainment. In the early 1970's, Mr. Mohney
organized each aspect of his businesses as a separate
corporation. Mr. Mohney also established five domestic trusts,
of which he and his four children were beneficiaries. Each of
these trusts owned an interest in another domestic trust, the
Durand Trust, which owned all the stock of Dynamic Industries,
Ltd., which owned many of Mr. Mohney's operating companies.
Mr. Mohney, together with three family members and a business
associate, Elizabeth L. Scribner, was also a beneficiary of a
foreign trust that owned all the stock of several foreign holding
companies, which owned all the stock of various foreign and
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