Theodore Langworthy, Jr. - Page 3

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               gross receipts from his tavern business during the years in            
               issue;                                                                 
                    (b)  petitioner is entitled to deduct certain business            
               expenses in excess of the amount allowed by respondent for             
               the years in issue;                                                    
                    (c)  petitioner is liable for additions to tax for                
               fraud under section 6653(b)(1)(A) and (B) for 1987 and under           
               section 6653(b) for 1988;                                              
                    (d)  petitioner is liable for penalties for fraud under           
               section 6663 for 1989 and 1990; and                                    
                    (e)  petitioner is liable for additions to tax for                
               substantially understating income tax under section 6661 for           
               1987 and 1988.                                                         
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated for trial pursuant to           
          Rule 91.  The parties' stipulations of fact are incorporated                
          herein by reference and are found as facts in the instant case.             
          Petitioner resided in Jamestown, New York, at the time he filed             
          his petition.  Petitioner filed timely Federal income tax returns           
          (returns) for all years in issue.                                           
          Background                                                                  
               During the years in issue, petitioner owned and operated the           
          Bullfrog Hotel (Bullfrog) in Jamestown, New York.  The Bullfrog,            
          located on the Chautauqua River in the industrial section of                
          Jamestown, consists of a 22-room hotel and a tavern.  The                   




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