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Additionally, the parties agree that petitioner's rental list is
a valuable intangible. However, the parties disagree as to
whether any portion of the list rental transaction constitutes
compensation for goods and services. The parties further
disagree as to whether the presence of any compensation for goods
and services in the list rental payment precludes royalty
treatment, pursuant to section 512(b)(2), for any portion of the
list rental payment. The issue has been the subject of much
litigation. See Disabled Am. Veterans v. United States, 227 Ct.
Cl. 474, 650 F.2d 1178 (1981) (DAV I), affd. after remand 704
F.2d 1570 (Fed. Cir. 1983); Disabled Am. Veterans v.
Commissioner, supra; Sierra Club, Inc. v. Commissioner, T.C.
3(...continued)
products. See id., 1981-2 C.B. at 136. The ruling provides, in
pertinent part:
To be a royalty, a payment must relate to the use
of a valuable right. Payments for the use of
trademarks, trade names, service marks, or copyrights,
whether or not payment is based on the use made of such
property, are ordinarily classified as royalties for
federal tax purposes. * * * On the other hand,
royalties do not include payments for personal
services. [Id.; citations omitted.]
In the first situation, the ruling concludes that, because the
exempt organization receives payment solely for the use of its
intangibles, the payment is a royalty. See id. In the second
situation, the ruling concludes that, because the organization
receives payment for the services of its members in endorsing
products, the payment is not a royalty. See id.
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