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handle cash received by House of Babes. However, he knew about
the system House of Babes used to pay shareholders and to keep
records. He was not directly responsible for House of Babes'
income tax filings and did not give false and incomplete records
to House of Babes' accountant, but he knew that Waldorf and Godby
were doing so.
4. Criminal Investigation of House of Babes
Special Agent Brister (Brister) investigated House of Babes
and petitioners for tax crimes. Brister investigated the income
tax liabilities of House of Babes from skimmed receipts and the
income tax liabilities of House of Babes' shareholders from
constructive dividends for 1984 and 1985. He interviewed Waldorf
on July 24, 1986.
C. Sale of the Assets of House of Babes
1. Terms of the Sale
On August 14, 1986, the shareholders sold the assets of
House of Babes, i.e., the building, land, fixtures, and
equipment, to 6400 HWY. 17-92, Inc. (the buyer), for $999,103.
Norman Kagen (Kagen) was a shareholder of the buyer and was its
accountant. The buyer assumed a $305,814 mortgage, paid $179,387
in cash, and gave a $525,000 promissory note bearing 10 percent
interest per year (the note).1 The buyer agreed to pay $100,000
1These amounts total $1,010,201, although the parties
stipulated that the sale was for $999,103. This inconsistency
(continued...)
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