- 13 -
arrangement. A Corporation is not precluded from deducting an
otherwise deductible royalty expense because the fee is paid to a
shareholder as opposed to a third party. Cf. Podd v.
Commissioner, T.C. Memo. 1998-231 (taxpayer entitled to deduct a
royalty fee paid to a shareholder to the extent the royalty fee
was reasonable), supplemented by T.C. Memo. 1998-418.
Respondent contends that it was reasonable for respondent to
treat petitioner as the implied assignee of the Area Agreement
because Domino's ignored the separate identity of petitioner from
Pizza Park for certain purposes. (Specifically, respondent
refers to the fact that in determining the store with the highest
volume in sales, all stores owned by both petitioner and Pizza
Park were pooled.) Respondent surmised therefore that for the
stores owned by petitioner, petitioner was entitled to receive
the Contested Payments as reimbursement. Because a taxpayer is
not entitled to deduct an expense for which there is a fixed and
unconditional right to reimbursement, respondent disallowed the
loss. However, respondent's position ignores the terms of the
parties' agreements.
First, we are not persuaded that respondent reasonably
determined petitioner to be the implied assignee of the Area
Agreement and therefore entitled to the Compensation. Petitioner
was never a party to the Area Agreement that provided for the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011