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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. 135.6
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
6 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'
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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