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accuracy-related penalties for negligence under section 6662. We
hold that it is liable. Some of the facts have been stipulated
and are so found. The stipulation of facts and joint exhibits
attached thereto are incorporated herein by this reference.
Issue 1: Compensation
Background
Petitioner was incorporated under California law in 1984.
At the time the petition was filed, petitioner’s principal place
of business was in the city of Ontario, in San Bernardino County,
California. Petitioner owns and operates an adult entertainment
complex comprising a nightclub, bookstore, video arcade, and live
peep show. Petitioner is one of a large group of corporations in
the same industry (the Mohney Group) that are owned, directly or
indirectly, by Harry V. Mohney (Mohney), either alone or as one
of several beneficiaries of a trust. During the years at issue,
petitioner’s stock was owned in equal shares by three Turks &
Caicos Islands holding companies, Fun Films Ltd., Tornado Trading
Inc., and Azid Trading Corp. Each of these holding companies
was, in turn, wholly owned by the Amaranta Trust, a foreign trust
established by Mohney. During the years at issue the trustee of
the Amaranta Trust was Andrew Newlands (Newlands) and the
beneficiaries were Mohney and members of his family. Under the
terms of the trust instrument Mohney had no control over trust
assets and no power to discharge the trustee or appoint his
successor in the event that he retired.
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