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In State Police Association of Massachusetts v.
Commissioner, 125 F.3d 1 (1st Cir. 1997), affg. T.C. Memo. 1996-
407, a police organization contracted with various publishing
companies for publication of a magazine in return for a share of
advertising proceeds from the magazine. Largely because of the
police organization’s close supervision over and involvement in
the content of the magazine and in the sale of advertising for
the magazine, this Court and the Court of Appeals for the First
Circuit concluded that the publishing companies acted as agent
for the police organization and that the payments the police
organization received from the publishing companies constituted
unrelated business taxable income. See id. at 7.
Petitioner relies on Rev. Rul. 81-178, 1981-2 C.B. 135, in
which a tax-exempt organization licensed other businesses to use
the organization's trademarks, trade names, and other intangible
property in the promotion and sale of the other businesses'
products and services. The tax-exempt organization retained the
right to approve the quality or style of the products or services
sold by the businesses using its name. In the ruling, respondent
concluded that the payments the tax-exempt organization received
from the businesses would constitute royalty payments and that
“the mere retention of quality control rights by a licensor in a
licensing agreement situation does not cause payments to the
licensor under the agreements to lose their characterization as
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