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sales of Amoco liners is a reasonable arm's-length consideration
pursuant to section 482 for the intangibles in issue.12
III. Issue 2: Whether Consulting Fees Paid by Powertex to
Special Commodities Services, Inc. Are Ordinary and Necessary
Business Expenses Deductible Under Section 162
FINDINGS OF FACT
From 1983 through 1992, James L. Clark (Mr. Clark) was employed
by Sea-Land as its Director of Corporate Terminal Operations and
Director of Special Commodities Services. His responsibilities
included managing the license agreement between Powertex and Sea-
Land, and providing technical support, marketing assistance, and
advice for assisting Sea-Land's customers in using Sea Bulk liners.
Pursuant to the license agreement between Sea-Land and Powertex, Mr.
Clark was responsible for providing technical advice and marketing
assistance to Powertex during the first year of the agreement, and,
subsequently, for using his best efforts to assist Powertex in
promoting Sea Bulk liners.
As a Sea-Land employee, Mr. Clark negotiated and executed the
1983 license agreement between Powertex and Sea-Land, several
12 Respondent also disallowed the royalty expense deductions
claimed by Powertex under sec. 162 on the grounds that they were
not ordinary and necessary business expenses, on the grounds that
Powertex actually owned, or at least had shop rights in, the
Amoco patents. In light of our holding that a royalty of 9
percent constitutes an arm's-length consideration pursuant to
sec. 482, such a royalty is deductible pursuant to sec. 162 as
well. See R.T. French Co. v. Commissioner, 60 T.C. 836, 849
(1973) (the arm's-length test commonly associated with sec. 482
is equally applicable in ascertaining the ordinary and necessary
character of a payment to a related party that is deducted under
sec. 162(a)).
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