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Crocus’s compensation consisted of a portion of the gross
revenues from foreign trade shows, which was contingent on the
amount of fees Crocus collected from exhibitors located in the
former Soviet Union. For foreign trade shows conducted during
the last 7 months of the fiscal year ended July 31, 1995,
Crocus’s compensation of 10 percent of gross revenues amounted to
$1,307,122 (10 percent of gross revenues of $13,071,216). For
foreign trade shows conducted during the fiscal year ended July
31, 1996, Crocus’s compensation of 10 percent of gross revenues
amounted to $2,068,759 (10 percent of gross revenues of
$20,687,586). Petitioner is entitled to deduct the amount of
such fees collected by Crocus during the taxable periods at issue
from exhibitors located in the former Soviet Union as reasonable
compensation to Crocus for its services in operating the foreign
trade shows.
25(...continued)
would have to be established under the laws of the place of
performance, in this case Russia. See Restatement (Second),
Conflict of Laws, sec. 221 (1971). The issue in this case is not
whether Crocus has a right to recover payments of compensation
from petitioner under theories of agency or restitution. Rather,
we must decide whether petitioner or ECI paid Crocus for its
services from net profits of foreign trade shows. The laws of
Russia or other foreign countries with respect to notions of
agency or restitution are not relevant in deciding whether
petitioner or ECI had a compensation arrangement with Crocus.
Our discussion of Crocus’s rights to compensation under common-
law principles of agency and restitution is simply meant to
refute respondent’s argument that Crocus worked on foreign trade
shows for nothing more than the reimbursement of its direct
expenses with no understanding that it would be entitled to a
markup to be applied to its overhead and the possibility of
making a profit.
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