DHL Corp. & Subsidiaries v. Commissioner

Petitioner DHL Corporation (“DHL”) appeals the tax court’s affirmance, in part, of the Commissioner of Internal Revenue’s assessment of income tax deficiencies and penalties against petitioner for the tax years 1990-1992, based on the Commissioner’s power to reallocate income between controlled entities .under 26 U.S.C. § 482 . Petitioner specifically appeals (1) the § 482 allocation to DHL of additional income arising from DHL’s sale to Document Handling Limited, International (“DHLI”) of the “DHL” trademark, which the tax court valued at $100 million; (2) the allocation of income to DHL for uncharged royalties from DHLI’s use of the “DHL” trademark prior to the sale; and (3) the imposition of penalties under 26 U.S.C. § 6662 triggered by these deficiencies.

The tax court had jurisdiction under 26 U.S.C. §§ 6213-6214 , 7442, and this court has jurisdiction under 26 U.S.C. § 7482 (a)(1). We reverse the tax court’s § 482 allocations to DHL of the value of the foreign trademark rights and unpaid royalties, and reverse the assessment of penalties under § 6662. We otherwise affirm.

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The tax court opinion provides a detailed account of the various companies’ histories,…