-6-
(ii) Reimbursement Upon
Termination: In the event that the
Vision agreement is terminated
before the end of the Term as a
result of a default by Vision,
FoxVideo will receive a
reimbursement of a portion of the
license fee paid to the date of
termination, based upon an
amortization of the license fee at
the rate of $2 million per year.
Pursuant to the Vision agreement, FoxVideo paid Vision the
referenced $3 million payment in 1995 and the referenced $1.75
million payment in 1996. On its 1995 Form 1065, U.S. Partnership
Return of Income, Vision reported its receipt of the $3 million
payment as long-term capital gain income from a $10 million
installment payment sale of “exclusive rights&know how”. On its
1996 Form 1065, Vision reported its receipt of $1,320,198 of the
$1.75 million payment as long-term capital gain income and
reported the rest ($429,802) as portfolio interest income.
On November 20, 2000, respondent mailed to petitioner a
notice of final partnership administrative adjustment (FPAA) for
1995 and 1996. Respondent determined in the FPAA that both
payments were taxable as ordinary income because, respondent
determined, they were received by Vision as a license fee.
OPINION
The parties dispute whether Vision sold or licensed to
FoxVideo the property underlying the $3 million and $1.75 million
payments. Petitioner argues that Vision sold this property to
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Last modified: May 25, 2011