Circle in the Square, the venerable Broadway theater, suspended operations Monday when producing director Gregory Mosher and exec producer M. Edgar Rosenblum resigned.

IRS debts of more than $2 million in back taxes and penalties kept nervous donors from keeping the bankrupt nonprofit theater, founded in 1951, operating.

“We discovered that the problems with Circle couldn’t be solved on stage,” Mosher told Daily Variety. “It didn’t matter how good our productions were, the problems had to be solved in court.”

After declaring Chapter 11 bankruptcy last August, Circle, which owes creditors more than $1.5 million in addition to the IRS debt, seemed to be on a rebound. The board of directors hired Mosher, a veteran of Lincoln Center Theater and a prominent director, to spearhead an artistic, and hopefully financial, rebirth.

Circle’s fall season got off to a promising start with the revival of Eugene O’Neill’s “Hughie” starring Al Pacino, and the winter production of Pam Gems’ “Stanley” continued the theater’s revitalization by scoring good reviews and three Tony Award nominations.

Mosher and Rosenblum also initiated an innovative ticket-pricing structure in which patrons purchased $38.50 memberships and then paid a mere $10 for any seat at any show. A subsequent special promotion designed to draw new, younger audiences suspended the membership fee altogether.

The ticket program apparently accomplished at least one goal: “Our demographics are enough to make you weep,” said Mosher. “Late 30s, ethnically diverse, a dream audience.”

But the financial makeup was another story. The audience-building ticket plan was designed in large part to appeal to potential corporate and foundation donors by presenting the theater as a hip, vital organization. Donors, however, couldn’t see beyond the tax problems.

“We’d go to our friends in the foundation and corporate business and they’d say they didn’t want to give money to the IRS,” Mosher said. “The killer wasn’t the Chapter 11 settlements, it was the looming IRS settlement.”

The tax debt was accrued during the administration of Theodore Mann, the longtime artistic director who co-founded (with Jose Quintero) the Circle as an Off Broadway theater in 1951. Mann resigned last summer as Circle was headed toward bankruptcy. Shortly thereafter, the theater’s co-artistic director, Josephine Abady, was fired and almost immediately replaced by Mosher.

The latest development followed a meeting between the Circle’s board, creditors and a bankruptcy judge on Monday. After the meeting, the board decided to suspend operations, and Mosher and Rosenblum resigned.

Mosher said the resignations were a “mechanism to force the issues in the bankruptcy courts.”

The Circle’s future is unclear, with any number of options available. Creditors could assume operation of the theater, although that’s unlikely, or they could sell off the assets (“everything from the broken typewriters to the name and lease,” said Mosher) to pay off the debts.

Mosher said he would consider participating in a reconstituted Circle if new owners shared his artistic vision. “If all you’re going to do is four more revivals every year, there’s no need for that in New York,” he said.

For the upcoming season Mosher had lined up an edgy adaptation of “The Odyssey” by Mary Zimmerman. Other productions were in the works, but Mosher said he was advised by lawyers not to disclose them.

During its heyday of the 1950s and ’60s, Circle was at the vanguard of the nonprofit theater movement, offering brilliant stagings of plays by O’Neill, Tennessee Williams and many others. Jason Robards, Colleen Dewhurst and George C. Scott are only a few of the names long associated with the theater.

“It was a visionary idea in 1951,” Mosher said. “There’s no shame in its falling on hard days.”

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