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his discounted cash-flow analyses and for his trademark royalty
determinations. Baran relied upon a general industry survey of
the licensing practices of unidentified companies. The trademark
royalty adjustments proposed by respondent’s trial experts were
less than the adjustments for the corresponding years in the
deficiency notices.
Walter Earl Huff (Huff) was used as an expert by respondent
in connection with the determination of the imbalance fee,
transfer fee, and network fee adjustments in the deficiency
notices. Huff’s expertise is in the petroleum industry.
Respondent acknowledged that the 1991 and 1992 deficiency notice
determinations relating to the imbalance and transfer fees are
incorrect because part of the amounts allocated to petitioners
had already been reported on the 1991 and 1992 returns.
Huff recommended a 15-percent cost plus markup method that
was used in the deficiency notice adjustments. The notices of
deficiency contained the same cost plus 15 percent markup method
for the transfer fee adjustment as they did for the imbalance fee
adjustment. Respondent’s trial expert on the transfer and
imbalance fees advocated a 4-percent cost plus markup.
In determining the imbalance and transfer fee adjustments,
Huff applied the 1987 adjustment amount, $2,019,600, to the years
1975 through 1986 and a prorated amount for 1974, even though the
shipment volumes were much higher in 1987. Huff did not subtract
the trademark royalties, imbalance fees, and transfer fee
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