Framatome Connectors USA, Inc. - Page 63




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          component of the covenant not to compete benefited Burndy-US’s              
          subsidiary, FC-Italy.                                                       
               FC-Germany, a subsidiary of FCI in 1993, also manufactured             
          automotive air bag connectors.  Respondent contends that buying             
          the European component of the US-Europe covenant not to compete             
          resulted in a constructive dividend to FCI because FC-Germany               
          could also benefit from the European component of the US-Europe             
          covenant not to compete.  We disagree.  FCI acquired the European           
          component of the US-Europe covenant not to compete to benefit FC-           
          Italy, not FC-Germany.  FCI obtained two other covenants not to             
          compete (Germany and Austria) to benefit FC-Germany.  A corporate           
          distribution is not a constructive dividend if the distribution             
          was not primarily for shareholder benefit.  See Sammons v.                  
          Commissioner, 472 F.2d 449, 452 (5th Cir. 1972), affg. in part,             
          revg. in part on other issues, and remanding T.C. Memo. 1971-145;           
          Gulf Oil Corp. v. Commissioner, 89 T.C. 1010, 1030 (1987), affd.            
          914 F.2d 396 (3d Cir. 1990).  The US-Europe covenant not to                 
          compete was not primarily for the benefit of FCI.                           
               We conclude that Burndy-US did not transfer excess value to            
          FCI in 1993 by paying $6 million for the European component of              
          the US-Europe covenant not to compete.                                      
                    f.   Conclusion About Transferred Excess Value                    
               Burndy-US transferred $20,881,431 ($15,807,495 + $3,926,430            
          + $1,147,506) in excess value to FCI in 1993.  Burndy-US                    






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