Pizza Industries, Inc., Domino's Pizza - Page 6




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          respondent determined that petitioner was not entitled to a                 
          royalty expense deduction for the portion of the royalty fees               
          paid to Mr. Paul (the Contested Payments).5  At the time,                   
          respondent's theory for disallowing the deduction was not clear.            
          Respondent issued a notice of deficiency for the taxable years              
          1992 through 1994 on February 25, 1997.                                     
               Petitioner filed its petition in this case on May 16, 1997.            
          Subsequently, on December 9, 1997, the Court served notice that             
          this case would be called for trial in San Diego, California, on            
          May 11, 1998.  Shortly before that date, on May 4, 1998, Kevin M.           
          Bagley entered his appearance as petitioner's co-counsel.  Two              
          days later, on May 6, 1998, the parties placed a telephone                  
          conference call to Domino's counsel.  During this call, Mr.                 
          Bagley asked Domino's counsel regarding the consequences if                 
          petitioner failed to make the Contested Payments to Mr. Paul.               
          Domino's counsel advised the parties that Domino's would be                 
          entitled to sue petitioner to recover the unpaid royalty.                   
          Pursuant to this conversation, respondent conceded the                      
          deductibility of the Contested Payments on May 7, 1998, by                  
          executing a stipulated decision, which was entered by the Court             
          on May 14, 1998.  Thereafter, on August 10, 1998, petitioner                


               5  Respondent made certain other adjustments that are only             
          computational that result from the disallowance of the royalty              
          expense deduction for the Contested Payments.                               




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