- 21 -
life insurance payments made by ERG; (4) constructive dividends
of $6,000 from director’s fees; (5) Franklin dividends of $193;
and (6) royalty income of $709.
The parties dispute whether the payments of $483,098 from
ERG to NPI (Hercules payment) constitute omitted gross income.
On their original 1989 return, the Bensons reported royalty
income of $165,48111 received from NPI. Benson v. Commissioner,
T.C. Memo. 2004-272. In our prior opinion, we stated:
On or about November 22, 1989, Hercules and ERG
entered into a memorandum of agreement (MOA), whereby
Hercules agreed to pay $483,098 as an add-on cost to
increase production of the baffle sets delivered by
ERG. The MOA was unique because it called for Hercules
to “facilitize” or fund ERG’s plant and equipment,
the cost of which is normally paid for by the owner of
the plant and equipment. Attached to the MOA is
“schedule 1”, which lists the equipment and their
associated prices as contemplated by the MOA. [Id.;
fn. ref. omitted.]
We also stated that “Burton testified that the ‘engineering
services’ for which ERG compensated NPI were consulting design
services that he performed to make the Hercules contract ‘work’.”
Id.
However, the Bensons’ return does not refer to the Hercules
payment. The Bensons assert that the Hercules payment is
disclosed on the 1989 amended return of NPI. As we held supra,
the 1989 amended return of NPI is not to be considered as a
11 It appears that respondent has factored this disclosure
into his calculation as the “Reverse Royalty income
recharacterized as constructive dividends”.
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