Jerry S. Payne - Page 2

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               authorizations for H to “tip” dancers in the amounts                   
               authorized, and (2) the 1990 transfer of the club’s                    
               operation from X, Inc. to Y, Inc., gave rise to a                      
               taxable liquidating dividend from X, Inc., to P.  R                    
               also disallowed 1989 and 1990 Schedule C deductions                    
               claimed by P for parking fees and for bad debt                         
               deductions as guarantor of construction loans defaulted                
               upon by P&P, Inc.  R also determined that P was subject                
               to the sec. 6662, I.R.C., accuracy-related penalty.                    
                    1.  Held:  The amounts listed on the “withdrawal                  
               authorizations” constituted valid promotional expenses                 
               of X, Inc., in part, and disguised dividends taxable to                
               P, in part.                                                            
                    2.  Held, further, the transfer of the club’s                     
               operation from X, Inc., to Y, Inc., constituted a tax-                 
               free reorganization under sec. 368(a)(1)(D), I.R.C.,                   
               that did not involve a distribution of “boot” taxable                  
               to P under sec. 356(a)(1)(B) and (2), I.R.C.                           
                    3.  Held, further, R’s disallowance of P’s                        
               Schedule C deductions for parking fees and for bad                     
               debts is sustained.                                                    
                    4.  Held, further, R’s penalty against P is                       
               sustained with respect to the deficiencies arising out                 
               of the disallowances of P’s Schedule C deductions.                     

               Jerry S. Payne, pro se.                                                
               Kathryn Bellis, for respondent.                                        

                       MEMORANDUM FINDINGS OF FACT AND OPINION                        
               HALPERN, Judge:  By notice of deficiency dated April 15,               
          1999 (the notice), respondent determined deficiencies in and                
          additions to petitioner’s Federal income tax liabilities as                 

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