Bill J. Malone, Jr. and Sarah J. Malone - Page 5

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          H “about H’s business from time to time,” but she did not provide           
          advice to H or other members of the Malone family as to business            
          or financial matters related to Malone Music.  Nor did                      
          petitioners or any member of the Malone family involved with                
          Malone Music seek professional advice or assistance regarding how           
          the activity should be operated.                                            
               Students secure the services of Malone Music in accordance             
          with written materials that explain, among other things, the                
          nature of the services offered, lesson schedules, fee schedules,            
          payment plans and arrangements, as well as what H and R expect              
          from their students.  A checking account in the names of H, R,              
          and petitioner was established for Malone Music (Malone Music               
          checking account).  Fees generated by the services offered by               
          Malone Music are generally due to be paid on a monthly basis.3              
          Students are required to “make checks payable to [the] instructor           
          personally.”  Cash payments received from the students are paid             
          directly to H and R.  Typically, payments received by H and R are           
          deposited in the Malone Music checking account.                             
               Initially, the expenses of Malone Music were paid by                   
          petitioner usually with checks drawn on his personal checking               
          account.  After the Malone Music checking account was opened, the           
          expenses for Malone Music were paid from that account.  If there            

               3  H and R also provide free music lessons to their                    
          siblings, and they barter for their services with those students            
          who cannot otherwise afford to pay their fees in cash.                      





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