- 168 -
investors became involved, no question about DHL’s ownership and
the 1974 MOA had been raised, except by DHLI’s general counsel,
who had his own view about the registration and ownership of the
trademark outside the United States. There is no indication that
his view was shared by management or the respective corporate
shareholders. It was not until the negotiations with the foreign
investors and intensive due diligence and when individuals became
motivated to reduce the contract price or value of the trademark
that the general counsel’s point of view about the ownership of
the DHL trademark gained support. Accordingly, we hold that
petitioners’ royalty-free reporting position was not reasonable.
Petitioners also argue that they had substantial authority
for their reporting positions. Section 1.6662-4(d)(3)(iii),
Income Tax Regs., provides that “substantial authority” includes
applicable Code provisions, regulations, and court cases.
Petitioners contend that they complied with the arm’s-length
standard of section 482 because their reporting position for the
trademark sale reflects the value determined through arm’s-length
negotiations. Petitioners also rely on Ciba-Geigy Corp. v.
Commissioner, 85 T.C. 172, 226-227 (1985), where the Court relied
upon offers from an uncontrolled party, including an offer made a
year before the controlled license in deciding an arm’s-length
royalty question.
The question of substantial authority here is not so much
one of legal authority, as of factual authority for the reporting
Page: Previous 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 NextLast modified: May 25, 2011