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We hold that, for the audit years, petitioner was entitled to
a deduction for royalties due with respect to books sold during
the year, less returns, without reduction for royalty payments
withheld from the authors during the year as "a reasonable reserve
for returns."
2. Whether the Determination of Deficiency Was
Arbitrary
Because of our holding that any reduction in petitioner’s
accrual deduction for royalties is improper, it is unnecessary to
address petitioner’s argument that the amount of respondent’s
proposed deficiency is "arbitrary and erroneous and cannot be
sustained".
C. Conclusion
Petitioner’s motion for partial summary judgment shall be
granted and respondent’s motion for partial summary judgment shall
be denied.
An appropriate order
will be issued.
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