Carl J.D. Bauman and Margaret A. Bauman - Page 25

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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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