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of the “deferred income” would have been “to recognize the
royalty income when received and set up a corresponding payable
to the inventors for the same amount.”
Given petitioners’ explanations, it was reasonable for
respondent to take the position that ISOA, Inc., was not merely a
conduit and that the $195,000 received by the corporation in 1995
was includable in taxable income in the year received. There was
no question that the licensing fees were received by ISOA, Inc.,
in 1995 and deposited into the corporation’s bank account. ISOA,
Inc., had control over the utilization and disposition of these
licensing fees and, in fact, paid related expenses from these
licensing fees. There is no indication in the record that the
licensing fees were ever deposited or segregated into any
separate account. While ISOA, Inc., may have had an unfixed
obligation to pay royalties to the inventors, the licensing fees
were not required to be held until that time.
Accordingly, it was reasonable for respondent to take the
position that ISOA, Inc., had dominion and control over the
licensing fees and that such amounts were not held by the
corporation merely as an agent or conduit. We find that
respondent’s position that the $195,000 of “deferred income”
should have been included in ISOA, Inc.’s 1995 taxable income was
a reasonable application of the law given the available facts and
circumstances at the time that respondent took his position.
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