Marlar, Inc., Plaintiff-Appellee-Cross-Appellant v. United States of America, Defendant-Appellant-Cross-Appellee

O’SCANNLAIN, Circuit Judge:

We must decide whether an adult-entertainment club, on the facts of this ease, is liable for federal employer taxes on the amounts nude dancers received from customers.

I

Marlar, Inc., operates an adult entertainment establishment, known as “Club Exta-sy,” offering nude and seminude dancing to the public. During the two tax years at issue, 1990 and 1991, Marlar’s operations were as follows. Upon entering the club, customers had to pay a cover charge and buy a soft drink. Without further expense, they could mingle with the dancers and watch them perform on the main…