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In a memorandum dated May 24, 1988, from Michael S. Munro to
Paul Quinn, Mr. Munro recommended that the purchase agreement
should not contain an allocation of the sale price.12 In
response to this suggestion, petitioner's legal department
removed the allocation from the subsequent draft dated May 25,
1988. However, in a memorandum dated May 27, 1988, Mr. Schaefer
expressed concern regarding the absence of such an allocation:
The lack of any purchase price allocation in the
Agreement is not particularly helpful from a U.S. tax
viewpoint. However, the fact that the purchaser is a
Japanese entity and the current lack of distinction in
the amount of tax on capital gains and ordinary income
minimizes this concern.
It could be advantageous to have a portion of the
purchase price allocated to "goodwill" in the four Far
East countries where Mister Donut already has
franchisees.
My main concern, though, is with uncertain tax
consequences surrounding the transfer of trademarks in
the Peoples Republic of China, Taiwan, Indonesia,
Malaysia, Singapore, and Hong Kong. It is possible
that the trademark transfers could generate a tax in
these countries. Therefore, if amounts are to be
allocated to the trademarks associated with these
countries, the purchase price allocated to them should
be as little as possible. If this is not practical as
negotiations continue, I would appreciate it if you
could keep me advised so that I can get some outside
professional help with respect to the tax consequences
of the trademark sale in these countries.
12Mr. Munro was an assistant to Mr. Quinn, petitioner's
group vice president for international affairs.
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