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case." Petitioner bears the burden of proving that the list
rental payments are royalties that are excluded from UBTI
pursuant to section 512(b)(2). See Rule 142(a).
In the instant case, respondent contends that, in each of
the list rental transactions, the mailer's entire payment
(including the amounts paid to the list brokers, Names and
Triplex) constitutes UBTI to petitioner because petitioner
regularly carries on a list rental business that is not
substantially related to its exempt purpose. In that regard,
respondent contends that the list brokers, Names, and Triplex are
petitioner's agents for the purpose of carrying on the list
rental business. Petitioner disputes respondent's contentions
and, additionally, contends that the mailers' payments are
excluded from UBTI as royalties pursuant to section 512(b)(2).
Before addressing respondent's trade or business and agency
arguments, we address the royalty issue.
In the instant case, the parties accept the definition of a
royalty found in Rev. Rul. 81-178, 1981-2 C.B. 135.3
3 In Rev. Rul. 81-178, 1981-2 C.B. 135, the Internal Revenue
Service sought to clarify the definition of royalty for purposes
of sec. 512(b)(2). The ruling deals with two different factual
situations. In the first situation, various businesses pay the
taxpayer, an exempt organization, for the right to use the
taxpayer's symbols and the signatures and likenesses of its
members in promoting their products. See id. In the second
situation, the businesses pay the taxpayer in return for its
members' making appearances in endorsement of the businesses'
(continued...)
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