Impact Research Corporation, Joan C. Benz, Tax Matters Person - Page 24




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          transaction.  The option expired.  There were negotiations.  The            
          exchange of stock for assets occurred, apparently in 1985, and              
          perhaps on terms more favorable to IRC’s and RIC’s shareholders             
          than were provided for in the option agreement.                             
               From the foregoing, it is clear that (1) the “upcoming                 
          business” was Systems’, (2) IRC and RIC were created to provide             
          investment capital for Systems’ trade or business, and (3), if              
          things worked well, then IRC and RIC would end up with Systems              
          stock and not with their own trade or business.                             
               Although the R & D Agreement appeared to provide IRC and RIC           
          with rights that theoretically they might be able to exploit in             
          their own trades or businesses, (1) neither party to the R & D              
          Agreement bothered to comply with some of the Agreement’s                   
          specific obligations, and (2) if the rights really turned out to            
          be valuable, then Systems had an absolute right to acquire them.            
          In fact, even though Systems let the option agreement expire,               
          that merely resulted in a negotiated merger into Systems and not            
          trades or businesses for IRC and RIC.  Thus, although the 1985              
          events deviated from the 1984 option agreement, the 1985 events             
          confirmed17 that element of the 1984 option agreement that                  
          controls for our purposes--Systems bought out IRC’s and RIC’s               



               17See Levin v. Commissioner, 832 F.2d 403, 406 n.3 (7th Cir.           
          1987), affg. 87 T.C. 698 (1986); MedChem (P.R.), Inc. v.                    
          Commissioner, 116 T.C. 308, 310 n.2 (2001), on appeal (1st Cir.,            
          Aug. 24, 2001).                                                             





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