- 54 -
A: You know I really don’t know. They seem like very
round numbers. They could be just what we in the
business call engineering estimates.
However, Burton presented no evidence detailing precisely what
services he provided, the number of hours he spent performing
those services, and whether the compensation charged was ordinary
and reasonable in the industry. Clearly, Burton controlled both
sides of the “table” with respect to ERG and NPI. Transactions
between related corporations are inherently suspect. Tulia
Feedlot, Inc. v. United States, 513 F.2d 800, 805 (5th Cir. 1975)
(“Transactions between related taxpayers or between a close
corporation and its principals * * * must be subject to close
scrutiny.” (citing United States v. Ragen, 314 U.S. 513 (1942)));
Ludwig Baumann & Co. v. Commissioner, T.C. Memo. 1961-271
(“common ownership factor requires a close scrutiny to determine
the substance of the transaction and whether it reasonably would
have been made between parties dealing at arm’s length.”), affd.
312 F.2d 557 (2d Cir. 1963).
Furthermore, we infer from the evidence that the exclusive
licensing agreement was merely a tax planning tool, completely
lacking in economic substance. Although taxpayers are entitled
to structure their transactions in such a way to achieve the most
advantageous tax ramifications, nonetheless, those transactions
must be real and have economic substance. Gregory v. Helvering,
293 U.S. at 469. For example, the exclusive licensing agreement
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