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On July 7, 1986, in Monterrey, Mexico, LTD, entered into a
contract with the inventors of TVA and the investors in TVA, Inc.
(TVA partners). LTD agreed to obtain the funds necessary for the
commercial exploitation of TVA. To that end, LTD formulated a
prospectus and executed a marketing program to solicit venture
capital. The capital call was directed by Arnulfo Rodriguez,
head of MultiValores' investment banking unit in Monterrey. All
potential subscribers were contacted from the Monterrey office.
Essentially, LTD raised $4,400,000 by purchasing units in the
trust for its clients' accounts.
For its expenses incurred in the capital call, LTD directed
INC to send Magus, Ltd., an invoice approximately every 6 months.
LTD also instructed INC to pay TVA monthly an amount to cover its
development expenses. INC performed no other activities in the
capital call.
In raising the funds for TVA, LTD received three types of
income. The first type of income was, pursuant to its contract
with the TVA partners, LTD’s right to commissions of 5 percent of
the total funds that it raised for TVA. The second type of
income was an administration fee from the TVA partners at a rate
of $5,000 per month. The third type of income was revenue that
LTD received by charging some clients who purchased units in the
trust a percentage commission. The gross receipts and direct
costs relating to LTD’s "Commissions TV Answer" and "TV Answer
* * * [Administration] Fee" for each taxable year are as follows:
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