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Accordingly, we sustain respondent’s determination disallowing
the royalty expense deduction that petitioner claimed in its tax
return for that year.
Accuracy-Related Penalty Under Section 6662(a)
Respondent determined that petitioner is liable for the year
at issue for the accuracy-related penalty under section 6662(a).
Petitioner contends that respondent’s determination is wrong
because (1) “there is no underpayment of tax”; (2) “there is no
evidence that it was negligent or disregarded rules or regula-
tions”; and (3) “there is substantial authority for the deduction
of the Royalty Expense”. Although it is not altogether clear,
petitioner also seems to contend that it is not liable for the
accuracy-related penalty because it relied on its accountant, Mr.
Miller, in deducting the claimed royalty expense in the Form 1120
that it filed for the year at issue.
10(...continued)
that are not discussed herein, including the following alterna-
tive argument of petitioner:
Even assuming arguendo that the Royalty Expense
was an expense of the other Related Entities [i.e., the
Braswell sales corporations], the assumption by Peti-
tioner of the marketing functions including the engage-
ment of CMC’s services and ultimate liability for those
services substantiates a deductible business expense to
Petitioner under the principles articulated in Dinardo
v. Commissioner, 22 T.C. 430 (1954).
We find Dinardo and the other cases on which petitioner relies to
support its alternative argument to be distinguishable from the
instant case and petitioner’s reliance on those cases to be
misplaced.
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