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USNB to make exceptions for certain alumni members, petitioner
was seeking to influence how USNB ran its business, not
conducting its own business.
In Sierra Club, Inc. v. Commissioner, supra, ABS promised
the cardholders that they would receive a rebate of the annual
fee if they participated in the program for a second year. Id.
at 343. ABS breached that agreement. Id. The Sierra Club
helped arrange refunds to members. Id. We found that the Sierra
Club's actions were done to protect its good name. Id.
Similarly, petitioner was acting to preserve its good name with
alumni. We hold that USNB's payments to petitioner were not
compensation for services rendered and that petitioner’s
activities are compatible with the treatment of those payments as
royalty income.
4. Petitioner's Financial Risks and Rewards
In deciding whether income a taxpayer receives is royalty
income, we may consider the taxpayer's financial risks and
rewards, including whether the taxpayer has a net profits and
gross profits interest. See Sierra Club, Inc. v. Commissioner,
supra at 333.
In Sierra Club, the taxpayer did not have a net profits
interest in the royalty payments because its income was based on
a percentage of the total charges. Id. at 333. Instead, it had
a gross profits interest. A gross profits interest is the right
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