Comtek Expositions, Inc. - Page 20

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               reimbursement to petitioner and Crocus of their direct                 
               expenses and overhead allocable to foreign trade shows]                
               were * * * divided either equally between petitioner                   
               and Crocus (petitioner’s position) or between Aras                     
               Agalarov (50%) and the other three shareholders of                     
               Comtek (50%) (respondent’s position).                                  
                         *    *    *    *    *    *    *                              
                    27.  The parties stipulate that both ECI and the                  
               royalty agreement should be disregarded for federal                    
               income tax purposes.  Respondent concedes that if the                  
               foreign trade show receipts are treated as gross income                
               received by petitioner, then petitioner is entitled to                 
               deduct the foreign trade show expenses that were paid                  
               from the trade show receipts treated as gross income to                
               the extent that such expenses have been substantiated                  
               * * *.  This would include trade show expenses paid by                 
               ECI directly and trade show expenses Crocus paid for                   
               which it was reimbursed through ECI.  The parties agree                
               that no adverse inference should be drawn against                      
               either of them based on the ECI [royalty] agreement.                   
               The parties agree that the Court may characterize the                  
               relationship between petitioner and Crocus vis-a-vis                   
               the foreign trade shows based solely on this                           
               Stipulation of Facts and the Exhibits attached hereto                  
               and the opposing party’s admissions filed in this case.                
               The parties reserve the right to object on relevancy                   
               grounds to any proposed finding of fact based on the                   
               admissions.                                                            
                    The sole issue in dispute is how Crocus and                       
               petitioner should report the income generated by the                   
               foreign trade shows.  Petitioner contends that, if the                 
               ECI [royalty] agreement is ignored, then it and Crocus                 
               were joint venturers in the foreign trade shows during                 
               the years at issue and that the trade show profit                      
               should be divided either equally (i.e., 50% petitioner,                
               50% Crocus) or that profits should be allocated based                  
               on each party’s payment of trade show expenses.  If the                
               Court finds that petitioner and Crocus were engaged in                 
               a joint venture during the years at issue and that they                
               agreed to split equally the net profits from the                       
               foreign trade show business, respondent concedes that                  
               such an allocation of the net profits would have                       
               "substantial economic effect" under I.R.C. � 704(b)(2).                
               Alternatively, if the Court determines that petitioner                 
               must report all of the gross receipts, then petitioner                 
               contends that it is entitled to a deduction for the 50%                




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