- 34 -
the licensee assuming that risk. The Commissioner’s position
in Rev. Rul. 81-178, id., with which we agree, Disabled Am.
Veterans v. Commissioner, 94 T.C. at 70 (1990), revd. on other
grounds, 942 F.2d 309 (6th Cir. 1991), is that payments for the
use of a name or signature, without any personal appearance or
interviews, are royalties within the meaning of section
512(b)(2). In part, petitioner received royalty income in
consideration of assuming the risk of damage to its intangible
assets. When that risk matured into a foreseeable loss,
petitioner spent its own money to avoid that loss. That is not
inconsistent with its receipt of royalty income.
8. Extension of Credit
Pursuant to the Concept-Chase Lincoln agreement, Chase
Lincoln was responsible for receiving and processing
applications for the affinity credit card at its sole expense.
Chase Lincoln retained a subcontractor to run the credit
scoring system. Chase Lincoln was responsible for issuing the
credit cards to all of the members that qualified, also at
Chase Lincoln's sole expense. Under the agreements, other than
Chase Lincoln's right to acquire responsibility for the duties
of ABS and Concept, the duties of the parties were discrete:
e.g., no party other than Chase Lincoln could accept an
application for credit (i.e., issue a credit card). Respondent
argues that petitioner attempted to persuade Chase Lincoln to
relax its credit tolerances so that additional credit cards
could be issued and higher profits realized. Respondent
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