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the gross receipts the events generated, none of the gross
receipts were reported on petitioner’s 1992 and 1993 income tax
returns. Petitioner did not charge any rent for the use of the
grounds or the Bluesroom during these events or report any net
profit or income from the charitable events.
On or about October 21, 1994, shortly after his settlement
with South Coast Thrift, petitioner hired a consultant to help
him obtain a liquor license for the Bluesroom/5-4 Ballroom. On
October 28, 1994, petitioner held a public ceremony at the
building celebrating his “reopening of the 5-4 Ballroom/Supper
Club” and began operating the Bluesroom as a commercial
entertainment facility. Following the ceremony, petitioner
offered performances in the Bluesroom to the public for which he
charged customers an admission fee or cover charge of $10 per
person. Thereafter, on a number of days from 1994 through 1995,
petitioner charged customers admission fees to attend various
events and performances held in the Bluesroom. None of the
performances were held in the original 5-4 Ballroom space on the
second floor because the second floor still required additional
substantial work before it could be used in a commercial
activity.
Petitioners’ 1992 and 1993 Income Tax Returns
Since 1968, petitioners’ income tax returns, including their
returns for the years in issue, were prepared by William D.
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