International Multifoods Corporation and Affiliated Companies - Page 15

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          Petitioner's Allocation and Reporting of the Proceeds From the              

               Duane A. Suess and John D. Schaefer were employees in                  
          petitioner's tax department and were involved in the sale of the            
          Mister Donut franchise business in Asia and the Pacific.  Messrs.           
          Suess and Schaefer reviewed all drafts of the purchase agreement.           
               The first draft, which was dated January 20, 1988, and                 
          prepared by Bruce M. Bakerman of petitioner's legal department,             
          contained a provision allocating the purchase price between the             
          existing franchises, goodwill, trademarks, and pending trademark            
          applications.  The actual percentage to be allocated to these               
          assets was left blank.  Mr. Suess reviewed this draft and                   
          handwrote the following on the document:                                    

                    Approve subject to:                                               
                    1) Review of foreign tax consequences associated                  
               with each country covered by the agreement;                            
                    2) Review of foreign source income rules to                       
               determine best way to maximize foreign source income.                  
               Initial review indicates goodwill and noncompete                       
               covenants may give rise to such income.                                
                    3) Allocation of proceeds will be critical aspects                
               of 1 & 2 above, therefore flexibility in this area                     
               should be a major negotiating point.                                   

          Duskin's covenant under the purchase agreement.  As a result,               
          Duskin was no longer precluded from competing in the donut                  
          business outside Japan; rather, Duskin could compete anywhere in            
          the world outside of 41 enumerated countries, none of which were            
          located in Asia.                                                            

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