Jerry S. Payne - Page 1

                                 T.C. Memo. 2003-90                                   

                               UNITED STATES TAX COURT                                

                            JERRY S. PAYNE, Petitioner v.                             
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 12473-99.            Filed March 27, 2003.                  

                    Prior to and during the audit years (1989 and                     
               1990), P practiced law in Houston, Texas.  He was                      
               also involved in the real estate business through his                  
               investment in P&P, Inc.  Prior to 1989, P provided                     
               legal services to X, Inc., which operated a topless                    
               dance club in Houston, and to H, a 50-percent                          
               shareholder of X, Inc., and manager of the club.  In                   
               payment of the overdue fees for those services, P                      
               acquired most of the assets and all of the stock of X,                 
               Inc., and he assumed management control of the club.  P                
               leased the assets back to X, Inc., for use by the club.                
               In November 1990, after securing a permit to continue                  
               to conduct a sexually oriented business at the club’s                  
               premises and a mixed beverage permit (liquor license)                  
               for Y, Inc. (also wholly owned by P), at such premises,                
               P caused the club’s operation and assets (including the                
               leased assets) to be transferred from X, Inc., to Y,                   
               Inc.  R determined that (1) “withdrawal authorizations”                
               signed by P, in 1989 and 1990, for various sums of                     
               money were disguised dividends to P rather than                        

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