- 19 -
and the burden of proof is on the taxpayers. Rule 142(a); Welch
v. Helvering, 290 U.S. 111, 115 (1933).
We agree with petitioners that the License Agreement was a
bona fide, arm’s-length agreement. This is not a case where a
sole shareholder is dealing with a corporation. To the contrary,
the shareholders of HSC knew of the proposal to move to a
national format and were given an opportunity to share in the
expansion. However, they were unwilling to risk the success that
HSC had attained in order to share the opportunity to expand
nationally; instead, they approved the terms of the License
Agreement, including the 1-percent license fee payable to Pioneer
for the Local Software. See Roman Systems, Ltd. v. Commissioner,
T.C. Memo. 1981-273. The interests of the HSC shareholders with
regard to the transaction were adverse to those of Mr. Speer. In
particular, the largest minority shareholder of HSC, Mr. Paxson,
as trustee of the Barbara A. Paxson Trust, had every interest in
minimizing the payments to Pioneer, a company in which he held no
stake. Mr. Paxson testified, however, that at the time the
License Agreement was entered into, he felt that the license fee
payable to Pioneer for the Local Software was equitable and
reasonable. Moreover, Mr. Baker, as trustee of the Roy M. Speer
Trust, the controlling shareholder of HSC,8 recognized that he
8Respondent argues that Mr. Speer was actually the
controlling shareholder of HSC, because he owned 51 percent of
the stock through the Roy M. Speer Trust. Respondent contends
(continued...)
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011