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INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
On brief, respondent concedes that petitioner is entitled to
deduct as a royalty fee for the year at issue $441,210 of the
$902,476 that petitioner claimed as a deduction for the payment
under petitioner’s license agreement.6 However, it is respon-
dent’s position that petitioner has failed to establish that it
is entitled to a deduction in excess of the amount that respon-
dent concedes. In support of that position, respondent asserts:
Mr. Ciarrocchi testified that he believed that peti-
tioner should pay a higher royalty fee than Ogden [paid
under the Ogden license agreement] because he had
developed additional recipes for petitioner’s use
* * *. However, both agreements [the Ogden license agree-
ment and petitioner’s license agreement] contain the same
terms concerning the use of Mr. Ciarrocchi’s family recipes.
There is nothing in the Ogden licensing agreement that
limits the number of recipes covered by the agreement, nor
did Mr. Ciarrocchi testify that there were any such limita-
tions. Therefore, there is no basis for concluding that the
right granted to petitioner under * * * [petitioner’s]
license agreement to use Mr. Ciarrocchi’s recipes had any
greater value than the same right granted to Ogden under
* * * [Ogden’s license] agreement * * *. To the extent that
Mr. Ciarrocchi provided services to petitioner that he did
not provide to Ogden, he did so as an officer and employee
of petitioner and not pursuant to the license agreement.
6Respondent states on brief:
Respondent concedes that the Ogden license agreement
was negotiated at arm’s length and, thus, is extremely
probative evidence of the fair market value of the
rights conveyed to petitioner under * * *
[petitioner’s] license agreement. Consequently,
respondent concedes that petitioner is entitled to
deduct a royalty fee of $441,210, which is equal to 11%
of its “gross sales” as that term is defined in * * *
[petitioner’s] license agreement. [Fn. ref. omitted.]
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