- 35 -
compete are premised upon the assumption that the competing tax
interests of the parties will ensure that the allocation is the
result of arm's-length bargaining. Where the assumption is
unwarranted, there is no reason to be bound to the allocation in
the contract. See, e.g., Patterson v. Commissioner, 810 F.2d
562, 570 (6th Cir. 1987), affg. T.C. Memo. 1985-53; Schulz v.
Commissioner, 294 F.2d 52, 55 (9th Cir. 1961), affg. 34 T.C. 235
(1960); Lemery v. Commissioner, 52 T.C. 367, 375-376 (1969),
affd. per curiam 451 F.2d 173 (9th Cir. 1971). In the instant
case, Mr. Suess' memorandum of September 8, 1988, indicates that
the interests of Duskin and petitioner were apparently not
adverse as to the allocation of the sale price. No
representatives from Duskin testified at trial regarding whether
Duskin considered the allocation important, and, given Mr. Suess'
statements, we suspect that Duskin was unconcerned. Petitioner,
on the other hand, was certainly cognizant of the potential tax
consequences of the allocation, because of the obvious impact on
the calculation of petitioner's foreign tax credit, as well as
the possibility that the transfer of petitioner's trademarks to
Duskin would generate a tax in several Asian and Pacific nations.
Petitioner's expert witness, Robert F. Reilly,21 valued the
21Mr. Reilly was the director of the Valuation Engineering
Associates Division of Touche Ross when Touche Ross prepared the
allocation that petitioner used in its purchase agreement with
Duskin.
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