Zabetti A. Pappas - Page 4

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          engage in sexual activities with individuals who paid her for               
          such services.  The parties have referred to such arrangements as           
          the provision of “escort” services, and we shall do so in this              
          opinion.  Petitioner also sold electronic equipment, lighting               
          equipment, theater tickets, and music tapes.  She earned money              
          for designing apartment interiors and installing entertainment              
          systems; she also engaged in obtaining loans; and she dabbled in            
          her family’s real estate activities in Hawaii and Ohio.                     
               Petitioner formed Real Services, Inc. (Real Services), in              
          New York State on September 29, 1988.  Petitioner was its                   
          president and sole shareholder.  She signed a preprinted                    
          document, filling in the blanks, which indicated that she was an            
          employee of Real Services.  Her associate and companion, Laura              
          C., agreed to serve as vice president of Real Services but                  
          performed no meaningful activities in that role. Ms. C. was                 
          elected vice president of Real Services several months after                
          using that title to attest to petitioner’s employment contract.             
               Two individuals named Ted P. and Michael S. were business              
          associates of petitioner but were not actively involved in the              
          operation of the corporation.  Real Services did not file Federal           
          corporation income tax returns, Federal payroll tax returns, or             
          New York State tax returns covering any of the years at issue.              
               Petitioner maintained sketchy and incomplete records for               
          Real Services.  She did, however, have signature authority over a           

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