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to have borne the costs of development if, pursuant to
an agreement entered into before the success of the
project is known, another person is obligated to
reimburse the controlled taxpayer for its costs. * * *
Intangible assets that are legally protected include
patents, trademarks, and copyrights. The Medieval Times
intangibles were not legally protected until the trademarks were
registered in California and Florida in 1987 and registered with
the U.S. Patent and Trademark Office in 1988.
We must ascertain who bore the largest portion of the
development costs of the Medieval Times “formula”. Petitioners
argue that the formula was the intangible transferred for
arm’s-length value. The facts overwhelmingly support the
conclusion that MTNV, from 1983 through 1986, developed the
Medieval Times formula. A. Gelabert was hired and paid by MTNV
to run the Florida operation. MTNV paid the salaries of the
employees who were responsible for developing the Medieval Times
concept, including: Stonecrow, who designed and produced the
costumes for the show; Bellows and Kudlacz, who developed the
marketing plans; and Galindo, who established the photography lab
and pioneered the use of group photographs.
The construction costs for the Florida castle were paid by
Inverspan. Inverspan received the funds from a loan guaranteed
by the Spanish investors who were also the MTNV and Inverspan
shareholders. The costs to modify the facility from 1983 through
1986 to reflect the ongoing development of MTNV were paid by
MTNV. Those modifications included work on the kitchen, the
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