- 15 -
time, insofar as its cash situation will reasonably permit." We
agree with respondent and find both cases to be on point.
We find no meaningful distinction between the contingencies
in Putoma Corp. v Commissioner, supra, and Burlington-Rock Island
R.R. v. United States, supra, and the contingencies that must be
satisfied prior to payment of the accrued royalties. There is no
guarantee that petitioner will ever have sufficient working
capital and cash reserves to meet its obligations. There is no
guarantee that petitioner's profit goals will be met. Indeed,
there is no guarantee that any profit will be made in any
particular year or set of years. The contingency that a certain
profit level or that sufficient working capital be reached by
petitioner has, as of the end of 1995, not been deemed by
petitioner to have been met in any of its operating years.9 As
of 1995, 13 years after petitioner began accruing royalties owed
to Matrix, petitioner has not paid any of the $6 million or more
in royalties it has accrued to Matrix.
We find that it was the intent of the parties to the royalty
arrangement that the payment of royalties be conditioned upon a
9We also note that a 30-percent tax is imposed pursuant to
sec. 881(a) on income of foreign corporations not connected with
a U.S. business. Sec. 881(a). Any payment of royalties by
petitioner to Matrix would appear to be subject to the 30-percent
tax. Sec. 881(a); see also sec. 1442(a) (requiring withholding
of the tax). The imposition of the 30-percent tax makes it less
likely that petitioner, under the control of Matrix, would ever
be required to pay the royalties to Matrix.
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