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Petitioner's Allocation and Reporting of the Proceeds From the
Sale
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.
11(...continued)
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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