Dak, Inc. - Page 3

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          effect for the fiscal year in issue.  All Rule references are to            
          the Tax Court Rules of Practice and Procedure.                              
               Respondent determined a deficiency in petitioner’s Federal             
          income tax of $30,447 for the taxable year ended May 31, 1995,              
          and an addition to tax pursuant to section 6662(a) in the amount            
          of $6,089.40.                                                               
               The issues for decision are: (1) Whether petitioner failed             
          to report income in the amount of $120,371 for the year ended May           
          31, 1995; and (2) whether petitioner is liable for an accuracy-             
          related penalty pursuant to the provisions of section 6662(a) in            
          the amount of $6,089.40.                                                    
               Some of the facts have been stipulated and are so found.               
          The stipulations of fact and the attached exhibits are                      
          incorporated herein by this reference.  Petitioner’s principal              
          place of business was in California on the date the petition was            
          filed in this case.                                                         
               DAK, Inc. (hereinafter petitioner) operates a restaurant in            
          Malibu, California, known as Moonshadows Restaurant                         
          (Moonshadows).  The restaurant is located on the Pacific Coast              
          Highway in Malibu and overlooks the Pacific Ocean.  The                     
          Moonshadows premises is owned by Dr. Robert Shlens (Dr. Shlens).            
               On October 1, 1991, Mr. Marvin Kelson (Mr. Kelson) was the             
          principal of petitioner and entered into a lease with Dr. Shlens            

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