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in the operating countries where the franchises had
been developed, the value to Duskin was in obtaining
the assets which comprised the goodwill. In contrast,
there was no value, or negligible value, in the
trademarks or trade names in the non-operating
countries. * * * Thus, in the non-operating countries
where the franchises had not been developed, any value
acquired by Duskin was merely for the right to do so.
[Emphasis added.]
Petitioner has failed to establish that it transferred any
goodwill in the nonoperating countries other than what might have
been embodied in its trademarks.
We find that petitioner did not establish that it
transferred any goodwill separate and apart from the goodwill
inherent in the franchisor's interest and trademarks that
petitioner conveyed to Duskin. Pursuant to section 865(d)(1),
income attributable to the sale of a franchise or a trademark is
sourced in the residence of the seller. The income petitioner
received upon the sale of these assets must, therefore, be
sourced in the United States.
2. Covenant Not To Compete
The only remaining asset transferred to Duskin that could
produce foreign source income is petitioner's covenant not to
compete. Respondent concedes that any amount allocated to the
covenant constitutes foreign source income to petitioner.
Respondent argues that the covenant (like goodwill) was
inseverable from the franchisor's interest that petitioner
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