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license agreement.8 Although not altogether clear, it appears
that petitioner may be arguing that it made a portion of the
$902,476 payment under petitioner’s license agreement in order to
compensate Mr. Ciarrocchi for services rendered to petitioner and
that that portion is deductible under section 162(a)(1). A
payment is deductible as compensation under section 162(a)(1) if
it is for services actually rendered to the payor in or before
the year of payment and is reasonable in amount.9 E.g., Lucas v.
Ox Fibre Brush Co., 281 U.S. 115, 119 (1930); sec. 1.162-7(a),
Income Tax Regs. On the record before us, we find that peti-
tioner has failed to carry its burden of showing that any portion
of the $902,476 payment that it made to Mr. Ciarrocchi in excess
of the amount that respondent concedes is deductible as a royalty
8Pursuant to Ogden’s license agreement, Ogden also agreed to
make at the inception of that agreement a nonrefundable payment
to 4010, Inc., of $10,000.
9In determining whether compensation is reasonable, we have
applied the so-called multifactor test, see, e.g., Estate of
Wallace v. Commissioner, 95 T.C. 525 (1990), affd. 965 F.2d 1038
(11th Cir. 1992), viewed through the lens of an independent
investor, where a case is appealable to a U.S. Court of Appeals
which has neither adopted nor rejected the so-called independent
investor test established by the U.S. Court of Appeals for the
Seventh Circuit in Exacto Spring Corp. v. Commissioner, 196 F.3d
833 (7th Cir. 1999), revg. Heitz v. Commissioner, T.C. Memo.
1998-220. See, e.g., Haffner’s Serv. Stations, Inc. v.
Commissioner, T.C. Memo. 2002-38, affd. 326 F.3d 1 (1st Cir.
2003). The instant case is appealable to the U.S. Court of
Appeals for the Third Circuit. That Court of Appeals has not
adopted the so-called independent investor test but has endorsed
the traditional multifactor test. See B.B. Rider Corp. v.
Commissioner, 725 F.2d 945 (3d Cir. 1984), revg. and remanding on
other grounds T.C. Memo. 1982-98.
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