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a "fixed" or "unconditional" right to receive reimbursement.
Whereas under the Area Agreement the right to receive the
Compensation was conditional and revokable, the obligation of a
franchise owner, such as petitioner, under a franchise agreement
to pay the 5.5-percent royalty fee was unconditional. Therefore,
there appears to be no fixed or unconditional right to receive
reimbursement for the Contested Payments.
Based on the forgoing, we are not convinced that respondent
reasonably determined that petitioner was entitled to a fixed or
unconditional right to receive reimbursement as an implied
assignee of the Area Agreement.
Finally, we have considered that respondent conceded this
case based on a single telephone conversation with Domino's
counsel. Upon being informed by Domino's counsel that Domino's
would be entitled to sue petitioner for recovery if petitioner
failed to make the Contested Payments to Mr. Paul, respondent
immediately conceded the deficiencies. We do not understand why
respondent did not seek to make this inquiry before issuing a
notice of deficiency. Respondent was not precluded from
contacting Domino's, a third party, to confirm respondent's
theory before issuing a notice of deficiency. Respondent was
aware of the basis for disallowing the deduction and should have
taken minimal steps to confirm or negate respondent's theory
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