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and refining the Local Software, had a tested, working, and
successful program in their possession, (4) the Local Software
could be used to develop and supplement the National Software,
and (5) the success of HSN’s new business endeavor was highly
speculative. Under the circumstances, we think that HSN’s
agreement to pay 1 percent of its gross income for the software
was reasonable. It is immaterial that HSN’s success may have
gone beyond the parties’ wildest expectations. See Brown
Printing Co. v. Commissioner, 255 F.2d at 440. Indeed, had the
other shareholders of HSC anticipated that the gross profits of
HSN would be so great, they would have invested in it when given
the opportunity to do so.
Finally, in rejecting respondent’s primary argument that the
License Agreement was a sham, we note that the License Agreement
had been disclosed in HSN’s public filings, including its annual
reports, prospectuses, and proxy statements. After Mr. Speer
sold his interest in HSN, HSN paid Pioneer more than $4 million
to terminate its obligation to pay the 1-percent license fee.
After considering all the evidence, we hold that Mr. Speer
did not receive constructive dividend income during the taxable
years 1988 through 1990, as a result of payments made by HSN to
Pioneer pursuant to the License Agreement. It follows that
petitioners did not make gifts during the taxable years 1985
through 1990 in amounts equal to these license payments to their
son, Richard M. Speer.
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