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to operate Moonshadows for a period of 15 years. The lease
provided that petitioner would pay a minimum rent of $120,000 per
year. The lease also required the payment of a percentage rent
of 7-1/2 percent of annual gross sales if that amount exceeded
the minimum rent of $120,000 per year. The lease also provided
that Dr. Shlens had the right to conduct an audit of
Moonshadows’s operations to verify the amount of its gross sales
for any given period.
In 1992, Kenneth R. Chiate (Mr. Chiate) purchased
Moonshadows from Mr. Kelson. Mr. Chiate is an attorney. He is
now the president and sole shareholder of Moonshadows and
purchased the business for reasons other than running the
restaurant. He has had nothing to do with the operation of the
restaurant since he purchased it.
After Mr. Chiate purchased the restaurant from Mr. Kelson in
1992, Mr. Kelson became Moonshadows’s accountant and bookkeeper
from 1992 through 1995.
In early 1995, Dr. Shlens hired a certified public
accountant, Ms. Cecy Groom (Ms. Groom) to audit petitioner’s
financial records. She was to verify the gross sales reported to
Dr. Shlens by petitioner in order to confirm that the amount of
rent being paid to Dr. Shlens by petitioner was correct. Ms.
Groom’s audit was initially directed to the period June 1994
through May 31, 1995 (the applicable period), but was extended to
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Last modified: May 25, 2011