Pizza Industries, Inc., Domino's Pizza - Page 12




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          payments to Mr. Paul, we are not convinced that respondent                  
          reasonably interpreted the Area Agreement to deny petitioner a              
          deduction for the Contested Payments.  In arriving at this                  
          conclusion we have considered the rights and obligations of the             
          parties as set forth in the Area Agreement and the Franchise                
          Agreements, including:  (1) Under the Area Agreement Pizza Park             
          was the party with the right to receive the Compensation; (2)               
          petitioner was not a party to the Area Agreement; (3) petitioner            
          was not wholly owned by Pizza Park or Mr. Paul, but was 49                  
          percent owned by another individual; (4) even Pizza Park's right            
          to receive the Compensation was conditional; (5) petitioner's               
          obligation to pay 5.5 percent of its royalty sales as a royalty             
          fee was unconditional; and, finally, (6) petitioner in fact                 
          satisfied this obligation.                                                  
               Petitioner's obligation to Domino's for the royalty fees               
          arose under the Franchise Agreements.  Pursuant to the Franchise            
          Agreements, each store operated by petitioner was unconditionally           
          required to pay 5.5 percent of its royalty sales proceeds to                
          Domino's as a royalty.  Respondent did not have any indication              
          that petitioner was relieved of this obligation.  Although                  
          petitioner did not pay the entire 5.5 percent royalty fee to                
          Domino's, respondent was provided with a letter from Domino's               
          counsel explaining the reason for this (albeit informal)                    






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