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Burton testified that this memorandum was “a tax planning
document”. Similarly, on or about March 7, 1996, Burton sent a
memorandum to Bradac stating: “Considering that we desire to
keep ERG at a profit of about $75K, we would then pull about
$260K out of ERG and allocate it to NPI.” (Emphasis added.)
Petitioners produced purported “invoices” for the royalties
paid only with respect to 1993. The invoices are printed on
NPI’s letterhead, addressed to ERG, and show an amount “due”.
Each document is stamped “RECEIVED” by ERG on a specific date and
bears a “paid” stamp showing an amount, date, and check number.
However, these invoices were not created contemporaneously with
payment and/or the receipt of services, but they were prepared in
response to a meeting Burton had with a revenue agent.
Burton testified that the “engineering services” for which
ERG compensated NPI were consulting design services that he
performed to make the Hercules contract “work”. He stated: “The
engineering services I’m referring to was the understanding
between ERG and NPI in light of the agreement that ERG had with
NPI to do the design services, to change the D-5 process, and
scale up to the delivery rate that the customer wanted.” He
stated that the payments were for his “engineering know-how”.
However, there was no written agreement between ERG and NPI
concerning the provision of engineering services.
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