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any of the list management or list fulfillment functions.
Rather, as in the instant case, a professional list manager
performed all list management functions, and a computer house
performed all list fulfillment functions. On cross-motions for
summary judgment, we held that the payment received by the exempt
organization was, at least in part, a royalty. We rejected the
Commissioner's argument that royalties, in the context of section
512(b)(2), meant only those earned passively. We also held,
however, that an issue of fact existed regarding whether any part
of the list rental transaction price, specifically the fees for
special selections, media, and shipping, was payment for goods
and services.
Before appeal, the parties in Sierra Club settled the issue
of whether any part of the list rental payment was for goods or
substantial services provided in connection with the rental
transactions. See Sierra Club, Inc. v. Commissioner, 103 T.C. at
310. In affirming our decision as to the royalty issue, the
Court of Appeals for the Ninth Circuit held that the term
"royalty", as it is used in section 512(b)(2), "is by definition
'passive' and thus cannot include compensation for services
rendered by the owner of property." Sierra Club, Inc. v.
Commissioner, 86 F.3d at 1532. Additionally, the court reasoned
that, because the exempt organization did not itself provide any
services to the mailer, the entire amount it actually received
was a royalty for UBIT purposes. See id. at 1535-1536.
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