International Multifoods Corporation and Affiliated Companies - Page 18

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               Based on our limited review of information                             
               provided to us, we allocated the $2,050,000 purchase,                  
               as follows:                                                            
          Trademarks              $120,000           6%                               
          Non-competition          820,000          40%                               
          Goodwill               1,110,000          54%                               
          Total                 $2,050,000         100%                               

          Article IV, paragraph 3, of the purchase agreement contained the            
          same allocation.                                                            
               In reporting its foreign and domestic source income for its            
          taxable year ended February 28, 1989, petitioner followed the               
          allocation contained in article IV of the purchase agreement.               
          After allocating its selling expenses among the goodwill and                
          trademarks sold to Duskin, petitioner reported $1,016,64313 of              
          foreign source income from the sale of goodwill, $820,000 of                
          foreign source income from the covenant not to compete, and                 
          $109,907 of U.S. source income from the sale of the trademarks.             
          Petitioner did not allocate any of its selling expenses to the              
          sale of the covenant not to compete.                                        


               We must determine what portion, if any, of the gain on                 
          petitioner's sale of its Asian and Pacific Mister Donut                     
          operations constitutes foreign source income for purposes of                

               13The parties have stipulated that petitioner should have              
          allocated selling expenses of $97,398 to goodwill, which would              
          have produced income in the amount of $1,012,602.                           

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