Eric B. Benson, et al. - Page 14

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               The document purports to sell certain “patent rights”                  
               owned by ERG to NPI and simultaneously grants ERG an                   
               exclusive license to use the patent rights transferred.                
               * * *  [Benson v. Commissioner, T.C. Memo. 2004-272;                   
               fn. refs. omitted.].                                                   
          We found that “the exclusive licensing agreement was merely a tax           
          planning tool, completely lacking in economic substance.  * * *             
          As the arbitrators found, the pattern of payment demonstrates               
          that Burton [Benson] was merely funneling ERG’s profits to NPI.”            
               We find that the disclosures of royalties on NPI’s returns             
          were misleading.  The returns of NPI failed to disclose that it             
          received the royalties from a related corporation, ERG, or that             
          Burton Benson acted on behalf of both corporations involved in              
          the transaction.  The returns of NPI failed to disclose that ERG            
          sold patent rights to NPI and simultaneously licensed those                 
          rights back from NPI in the exclusive licensing agreement.  Also,           
          the “royalties” label listed on the returns of NPI was misleading           
          and inadequate to apprise respondent that the transactions                  
          constituted a tax planning tool completely lacking in economic              
          substance.8  Because the royalties disclosures in the returns of            
          NPI were misleading, they fail to satisfy section                           

               8 With respect to the 1993 royalty payments, Burton Benson             
          prepared invoices in response to a meeting with a revenue agent--           
          “these invoices were not created contemporaneously with payment             
          and/or the receipt of services.”  Benson v. Commissioner, T.C.              
          Memo. 2004-272.                                                             

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