Daddy definitely had an unseemly sexual interest in Alice. If he hadn't molested Alice yet, he was nonetheless still planning to get around to it eventually and inevitably.
You've seen Guy Standeven in something because the man was in everything.

He either does or very much wants to. I don't know if it's something he actually did yet, but his intentions are obvious.

I think there are a few things that suggest he did.
Near the beginning, Daddy undoes his belt and said "Bad girls burn in hell", but it's never implied that he hits her- he could be sexually abusing her.
Alice says that Daddy and Mommy kept looking for the perfect boy child. Considering the backstory of the home, it could be implied that Alice was meant to breed with the "perfect" boy child to continue the lineage of the home. Since none of them worked out, maybe it was left up to Daddy to be Alice's mate.
Daddy seemingly gets jealous when telling Mommy that he thinks Alice has had sex with Fool, then calling her a whore. He wouldn't know if she were a whore unless he had done something.
Going up to the Attic in leather gear, rubbing his junk.

Yeah that penis rubbing scene caught me off guard, I saw this a couple times as a kid and don't remember that happening (it's possible that tv showed the cut version though I suppose and that's why)
But yeah that split second was really weird and yeah it suggested to me that he was getting ready to plow her And the costume he was wearing was of course typical S&M gear
I'm gonna refuse you an offer you can't make

It's one of those things that is left open
He was obliviously "interested" in Alice and mommy didn't take kind to it(at the time)
After time who knows?
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Your mother is one sick mother also

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I came here to post the same question. I also noticed he kept making accusations about Alice "having done it" with fool, possibly noting a hint of jealousy maybe? I think that scene was meant to show he wanted to but Mommy (even though she was a real beep in the film) wouldn't have allowed it to happen.
This movie swings from being campy to having adult/racial undertones. Makes me wonder: who were they trying to market?
[DATA EXPUNGED]

Well.. definitely fellatio. I think they could still technically call her a virgin after that.

He couldn't as long as she was a virgin
I want Sean Whalen! I want him bad!