Michael F. Lambaiso and Judy D. Lambaiso - Page 4




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          consequently, its income and losses passed through to its                   
          shareholders during each of the years at issue.                             
               Michael Lambaiso (petitioner) owned 200 shares of Classic Pub,         
          Inc. stock, while Jenro and Evelyn Lambaiso, petitioner's parents,          
          each owned 400 shares.  On November 22, 1991, petitioners purchased         
          Jenro and Evelyn Lambaiso's 800 shares of Classic Pub, Inc. stock.          
          Accordingly, the parties have stipulated that the income and losses         
          from Classic Pub should be allocated to petitioners as 28.98                
          percent for 1990, 100 percent for 1991, and 100 percent for 1992.           
               Classic Pub was licensed to serve alcohol by the Virginia              
          Alcoholic Beverage Control Board (VABCB).  It operated 16 hours a           
          day, from 10 a.m. to 2 a.m., 7 days a week.  Classic Pub ran some           
          form of discounted beverage specials each day of the week.  The             
          greatest number of discounted beverage sales occurred during the            
          Wednesday and Friday night "happy hours" from 7 p.m. to 9 p.m.  It          
          had a maximum seating capacity of 144 persons.1  Classic Pub                
          usually had two bartenders tending the bar at any given time and a          
          "bar back" person in order to relieve the bartenders from                   
          miscellaneous tasks.  Sales were rung up on the bar/restaurant's            
          cash register.                                                              
               Classic Pub submitted Mixed Beverage Annual Review (MBAR)              
          reports to VABCB, indicating the dollar amounts of its sales of             


               1    During the years at issue, the actual number of seats             
          was for 130 persons.                                                        




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