Newhouse Broadcasting Corporation and Subsidiaries, et al. - Page 14

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           of the liability, the liability can be determined with reasonable                           
           accuracy, and economic performance has occurred with respect to                             
           the liability.  See sec. 1.461-1(a)(2), Income Tax Regs.  The                               
           first two requirements comprise the "all events test" for accrual                           
           of a liability.  See sec. 461(h)(4).  The parties are in agreement                          
           that the amount of petitioner’s liability for royalty expense can                           
           be determined with reasonable accuracy.  Respondent also                                    
           acknowledges that economic performance has occurred.  See sec.                              
           461(h)(2)(A)(iii); secs. 1.461-4(d)(3)(ii) and 1.461-4(d)(7)                                
           Example (9), Income Tax Regs., which provide, in effect, that                               
           economic performance with respect to a royalty based upon sales                             
           during the taxable year, arising from the use of property, occurs                           
           as the sales occur during such taxable year.  We are, therefore,                            
           left to decide whether all of the events had occurred as of the                             
           end of each of the audit years that established petitioner’s                                
           liability for royalties attributable to book sales for those                                
           years, including amounts representing royalties that had been                               
           withheld from the authors as "a reasonable reserve for returns".                            
                       a.  The Author Contracts                                                        
                 The three forms of author contract (the contracts) are                                
           ambiguous with respect to the royalties due the author at yearend                           
           because the contracts discuss authors’ royalties solely in terms                            
           of the amount payable at the royalty payment dates rather than in                           
           terms of the amount owed.  Thus, under the contracts, the                                   






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