- 18 - the products. Finally, on May 23, 1996, as a result of expiration of some of the patents and the introduction of new technology, Cascade and Lea agreed to reduce the payment percentage to 1 percent of the sales of all products using the technology covered by the patents. On April 14, 1998, the 776 patent, the last patent included in the 1982 agreement, expired, and no payments were made to Lea under the agreement for products that were sold thereafter. The total amount paid to Lea under the 1982 agreement was approximately $6.5 million. Petitioners' Reporting Positions and Respondent's Determinations Cascade deducted the payments to Lea as patent amortization expenses. The Leas reported the payments as capital gains from the sale or exchange of the patents. In the notice of deficiency issued to Cascade, respondent disallowed the deductions claimed for patent amortization expenses because Cascade had not established that the payments were ordinary and necessary business expenses or were paid to purchase the patents. In the notice of deficiency issued to the Leas, respondent determined that the payments Lea received from Cascade were ordinary income from dividends, rather than capital gains.Page: 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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