TBL Licensing LLC v. Commissioner

158 T.C. 1 (2022)

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TBL Licensing LLC v. Commissioner

United States Tax Court
158 T.C. 1 (2022)

  • Written by Nathan Benedict, JD

Facts

Through a complex corporate restructuring involving Timberland Co. and VF Corp., TBL Licensing LLC (TBL) (petitioner), a United States entity, acquired intellectual property belonging to Timberland. TBL then constructively transferred the intellectual property to TBL GmbH—a foreign entity—in exchange for TBL GmbH stock, which TBL then distributed. Section 367(d) provides that if a United States taxpayer transfers intangible property to a foreign corporation, the taxpayer is treated as having sold the property. If a disposition occurs following the transfer, all such gains are recognized in that taxable year. Otherwise, gains are taxed annually over the useful life of the property. TBL Licensing contended that no disposition had occurred and thus paid taxes only on a portion of its gains. The Internal Revenue Service (IRS) (respondent) filed a notice of deficiency, contending that TBL Licensing was required to pay taxes on its entire income from the sale. The parties stipulated that Lee Bell, an indirect domestic subsidiary of VF, reported income from the transfer.

Rule of Law

Issue

Holding and Reasoning (Halpern, J.)

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Casebooks

International Taxation

Key Terms

  • Intangible PropertyProperty with no physical existence, such as an account number.
  • Useful lifeThe period over which an asset has economic value to its owner.
  • Income RealizationAn event pursuant to which a taxpayer receives cash, property or other taxable income.
  • Foreign CorporationA corporation operating in a state outside the state in which it was incorporated.
  • 26 U.S.C. § 367A provision of the Internal Revenue Code that governs the transfer of property of foreign corporations.

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