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considered the underlying subjective business motivation and the
objective economic substance of ERL’s activity, we sustain
respondent’s determination that ERL’s lease transaction was a
sham which is to be disregarded for Federal income tax purposes.
Issue 3. Minimum Royalty
ERL claimed substantial loss deductions on its 1980, 1981,
and 1982 returns. In material part, these deductions were
attributable to “accrued advance royalties”. In Bauman v.
Commissioner, T.C. Memo. 1988-122, a case involving the same
partnership and the same lease, the Court held that the royalty
obligations with respect to taxable years 1980 and 1981 were
neither “substantially uniform” nor “paid at least annually”.
Consistent with that holding, the Court further held that such
royalties were not deductible as advance royalties paid or
accrued “as a result of a minimum royalty provision” under
section 1.612-3(b), Income Tax Regs.
The facts before the Court in the instant case are
essentially identical to those before the Court in Bauman v.
Commissioner, supra, where the Court granted a motion by
respondent for partial summary judgment regarding the minimum
royalty issue. That case involved the years 1980 and 1981. An
additional year, 1982, is now before the Court. The facts with
respect to 1982, however, do not differ in any material aspect
from those pertaining to 1980 and 1981. Therefore, we reaffirm
our earlier decision, and, for the reasons stated therein, hold
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