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Memo. 1993-199 and affg. in part and revg. in part on other
grounds and remanding 103 T.C. 307 (1994);3 Disabled Am. Veterans
v. Commissioner, 94 T.C. 60, 70 (1990), revd. on other grounds
942 F.2d 309 (6th Cir. 1991).
The U.S. Court of Appeals for the Ninth Circuit discussed
the degree of activity the recipient of a royalty under section
512(b) may conduct as follows:
Thus, to the extent the Commissioner claims that a
tax-exempt organization can do nothing to acquire such
fees (e.g., providing a rate sheet listing the fee
charged for use of each copyrighted design or retaining
the right to approve how the design is used and
marketed), the Commissioner is incorrect. However, to
the extent that Sierra Club appears to argue that a
"royalty" is any payment for the use of a property
right--such as a copyright--regardless of any
additional services that are performed in addition to
the owner simply permitting another to use the right at
issue, we disagree. [Sierra Club, Inc. v. Commissioner,
supra at 1535.]
Thus, we must carefully review the actions by an
organization to ensure that fees are paid for the use of
intangible property and not for services. See Alumni Association
of the Univ. of Or., Inc. v. Commissioner, T.C. Memo. 1996-63;
3In that case, the U.S. Court of Appeals for the Ninth
Circuit reversed our grant of partial summary judgment and
remanded the case for trial on the issue of whether the income
generated by an affinity credit card program was a royalty
because the Tax Court did not view facts regarding the program in
the light most favorable to the Commissioner. Sierra Club, Inc.
v. Commissioner, 86 F.3d 1526, 1537 (9th Cir. 1996), affg. T.C.
Memo. 1993-199 and affg. in part and revg. in part on other
grounds and remanding 103 T.C. 307 (1994).
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