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After concessions, the issues for decision are: (1) Whether
petitioner may accrue and deduct royalties computed but not yet
paid under an agreement with Matrix, a foreign corporation which
owns 70 percent of petitioner; (2) whether petitioner may deduct
interest accruals allegedly owed to Matrix on the unpaid
royalties; and (3) whether petitioner is liable for accuracy-
related penalties pursuant to section 6662(a).1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the second stipulation of facts are
incorporated herein by this reference.
Petitioner, a Florida corporation with its principal office
in Fort Lauderdale, filed its Form 1120, U.S. Corporation Income
Tax Return, on a calendar year basis. Petitioner reported its
income and kept its books using the accrual method of accounting
for each year in issue. Petitioner's principal product is named
"Restore", an automobile engine additive sold in many stores
throughout the United States, Canada, and the Caribbean. The
essential ingredient in the engine additive is a specially
developed metal alloy (alloy) in powdered form which, when mixed
1Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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