- 99 -
C.B. at 477. This Court has long recognized the use of an "arm's-
length" standard to determine the ordinary and necessary
character of a payment to a related party under section 162(a)
(and its predecessor, section 23(a)). Differential Steel Car Co.
v. Commissioner, 16 T.C. 413, 423-425 (1951); Granberg Equip.,
Inc. v. Commissioner, 11 T.C. 704, 713-714 (1948); Nestle Co. v.
Commissioner, T.C. Memo. 1963-14.
Section 482 sets forth two requirements with respect to
intangibles: (1) A transfer or license of the intangible and
(2) the income received because of the transfer must be
commensurate with the income attributable to the intangible.
Petitioners assert that there was a transfer of intangibles,
i.e., the Medieval Times concept from TM to Gatetown and from
Gatetown to Manver. Petitioners further assert that, once Manver
owned the intangibles, MSI and MDT were obligated to enter into
licensing agreements with Manver in order to use the Medieval
Times concept. Petitioners’ primary arguments begin at this
point and focus on whether the amounts paid under the licensing
agreements are commensurate with the income attributable to the
intangibles. Petitioners rely on the section 482 regulations,
which provide several different methods to determine whether a
transaction is at arm’s length. The methods address the “income
attributable to the intangible” language of section 482.
Before we can ascertain if the income with respect to a
transfer is commensurate with the income attributable to the
Page: Previous 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 NextLast modified: May 25, 2011