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Fiscal Net Taxable
Year Income
1985 $1,290,536
1986 1,351,033
1987 1,701,787
1988 4,335,176
1989 6,739,962
1990 7,174,522
During February 1988, Mr. Podd discussed with his accountant,
Ronald R. Plante of Peat Marwick, the possibility of licensing the
Amoco patents to Powertex. The discussion was motivated in part by
the increasing amounts of taxable income that Powertex was expected
to earn from the increased sales of Amoco liners. In May 1989, at
the end of Powertex's fiscal year, Mr. Podd and Mr. Plante again
discussed licensing the Amoco patents to Powertex and set the
royalty rate at 15 percent of net sales of Amoco liners.
Powertex did not make any royalty payments for use of the Amoco
patents during the fiscal years ending May 31, 1986, through May 31,
1988. On its Federal corporate income tax returns for the fiscal
years ending May 31, 1989, and May 31, 1990, Powertex reported
paying royalties of $686,034 and $531,082, respectively. On May 30,
1989, and May 30, 1990, Powertex issued checks to Mr. Podd in the
amounts of $617,430.26 and $477,973.35, respectively. Such amounts
represented the amounts deducted by Powertex for royalties on its
Federal corporate income tax returns, less a 10-percent withholding
tax payment. Each of the Podds reported one third of the amount
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