International Multifoods Corporation and Affiliated Companies - Page 22

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          (5th Cir. 1994); Israel-British Bank (London), Ltd. v. FDIC, 536            
          F.2d 509, 512-513 (2d Cir. 1976); Edward B. Marks Music Corp. v.            
          Colorado Magnetics, Inc., 497 F.2d 285, 288 (10th Cir. 1974).17             
               Respondent contends that, although not denominated as such,            
          what Duskin acquired from petitioner was a territorial franchise            
          for the operating and nonoperating countries.  Petitioner, on the           
          other hand, argues that it did not sell Duskin a franchise, but,            
          rather, the entire Mister Donut franchising business in Asia and            
          the Pacific.  Petitioner maintains that the sale of a franchise             
          requires the franchisor to retain an interest in the business and           
          that petitioner failed to retain the requisite interest in this             
          case following the sale to Duskin.  Petitioner contends that                
          section 1253(a) and our opinion in Jefferson-Pilot Corp. v.                 
          Commissioner, 98 T.C. 435 (1992), affd. 995 F.2d 530 (4th Cir.              
          1993), support its interpretation of "franchise".                           
               Although section 865 does not provide a definition of                  
          franchise, section 1253(b)(1) defines it for purposes of section            

               16(...continued)                                                       
          allocate any portion of the sale price to the franchise                     
          agreements.  Instead, petitioner allocated $1,930,000 to goodwill           
          and the covenant not to compete and later reported this amount as           
          foreign source income on its 1989 Federal income tax return.                
          Petitioner allocated the remaining $120,000 of the sale price to            
          the trademarks and reported this amount as U.S. source income on            
          its 1989 return.                                                            
               17In Edward B. Marks Music Corp. v. Colorado Magnetics,                
          Inc., 497 F.2d 285, 288 (10th Cir. 1974), the court stated that             
          "it is the general rule that a proviso should be strictly                   
          construed to the end that an exception does not devour the                  
          general policy which a law may embody."                                     




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