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II. Constructive Dividend Issue
Petitioner alleges that all of the WAs were authorizations
for Helmle to use the stated amounts, and no more than those
amounts, to tip the club’s dancers (as well as dancers at
competing clubs) in order to assure that the club would be able
to retain a sufficient number of “quality dancers”. Respondent
counters that petitioner has not furnished credible evidence that
the cash distributed by means of the WAs was used by petitioner
for any business purpose.
Petitioner testified that he was advised by Helmle, who,
according to petitioner, effectively ran the club on a day-to-day
basis for petitioner during the audit years, that it was
necessary to use club funds to tip the dancers and, in
particular, the “quality dancers”. According to petitioner, the
need to tip the dancers had become urgent in light of the pending
litigation over the club’s right to an SOB permit and the
dancers’ concern that the club would go out of business if it
failed to secure the permit. Petitioner testified that Helmle
would take money out of the cash register and use it to tip
dancers, both at Caligula XXI and at competing clubs (apparently
to attract dancers at those other clubs to come work at Caligula
XXI). Petitioner contends that the sole purpose of the WAs was
to restrict the amounts of cash that Helmle would be permitted to
use for that purpose.
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