- 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 NextLast modified: May 25, 2011