- 18 - II. Internal Revenue Code Pursuant to sections 511 through 513, an organization otherwise exempt from the income tax is required to pay tax, at regular corporate rates, on its “unrelated business taxable income” (UBTI). UBTI is defined by section 512(a)(1) as “the gross income derived by any organization from any unrelated trade or business * * * regularly carried on by it * * * [less certain deductions and with certain modifications].” As relevant here, section 512(b)(2) excludes from UBTI “all royalties * * * whether measured by production or by gross or taxable income from the property”. III. Definition of Royalties In Sierra Club (1996), 86 F.3d at 1532, the Ninth Circuit held: “[U]nder � 512(b)(2) ‘royalties’ are payments for the right to use intangible property.” Accord Disabled Am. Veterans v. Commissioner, 94 T.C. 60, 70 (1990), revd. on other grounds 942 F.2d 309 (6th Cir. 1991). The Ninth Circuit further held that a royalty is by definition “passive” and, thus, “cannot include compensation for services rendered by the owner of the property.” Sierra Club (1996), 86 F.3d at 1532. IV. Arguments of the Parties Both parties fasten on the definition of the term “royalties” adopted by the Ninth Circuit. Petitioner argues that its name, logo, and mailing list are all intangible assets, which, by one of the agreements (the SC-ABS agreement), it licensed to ABS in return for payments that, in form andPage: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Next
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