Darrell L. Gaines - Page 7

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               On March 16, 1991, petitioner traded an unimproved 5-acre              
          parcel of land that he owned for Grand Video, a video rental                
          business with a store located in Vancouver, Washington.  The                
          selling price for the business, which did not include the land or           
          building in which the store was located, was $30,000.  On his               
          1991 Federal income tax return, petitioner reported a $53,000               
          basis in the land and claimed a long-term capital loss of $23,000           
          as a result of the acquisition of Grand Video.  Petitioner owned            
          and operated Grand Video as a sole proprietorship from the date             
          he acquired it throughout the years in issue.                               
               Grand Video’s store was typically open from 10:30 in the               
          morning until midnight, 7 days a week.  Initially, petitioner was           
          the only person who worked in the store.  He eventually hired               
          employees to assist him.  At first, petitioner paid his employees           
          “under the table”; that is, in cash, without withholding for                
          Federal and State income and employment taxes.  He failed to file           
          the requisite Federal and State employment tax forms until                  
          examined by State employment tax authorities.  As a result of the           
          State audit, petitioner was determined to be an unregistered                
          employer from June 1993 through July 1995.  He was fined $500,              
          plus penalties and interest.                                                
               Petitioner used unnumbered, duplicate receipts to track                
          video rentals at Grand Video.  When a video was rented,                     








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