Martin Ice Cream Company v. Commissioner United State Tax Court, T.C T.C. 189

History and Judge United States Tax Court for petitioner (Martin Ice Cream) United States Tax Court for petitioner (Martin Ice Cream) Beghe, Judge Beghe, Judge

Facts Taxpayer organized an ice cream distribution company (Martin) with which he had no employment agreement Taxpayer organized an ice cream distribution company (Martin) with which he had no employment agreement The founder of Haagen-Dazs asked the taxpayer to distribute his product using his distribution relationships The founder of Haagen-Dazs asked the taxpayer to distribute his product using his distribution relationships Martin, the taxpayer, nor the founder entered into any written agreement Martin, the taxpayer, nor the founder entered into any written agreement Haagen-Dazs was purchased by Pilsbury, which purchased Martin/taxpayer’s assets, goodwill, and rights to relationships Haagen-Dazs was purchased by Pilsbury, which purchased Martin/taxpayer’s assets, goodwill, and rights to relationships Commissioner contends that Martin should recognize the full gain on all assets purchased Commissioner contends that Martin should recognize the full gain on all assets purchased Petitioner claims that rights to relationships (by far the most valuable asset) were not owned by the petitioner (Martin), but by the taxpayer Petitioner claims that rights to relationships (by far the most valuable asset) were not owned by the petitioner (Martin), but by the taxpayer

Issue Are personal relationships of shareholder- employees corporate assets when the employee has no employment contract or other written agreement with the corporation? Are personal relationships of shareholder- employees corporate assets when the employee has no employment contract or other written agreement with the corporation?

Holding No, ownership of intangible assets in the form of rights to relationships cannot be attributed to the company when the taxpayer never entered into an employment agreement, a covenant not to compete, or any other agreement that would give the company ownership or access to his rights of relationships No, ownership of intangible assets in the form of rights to relationships cannot be attributed to the company when the taxpayer never entered into an employment agreement, a covenant not to compete, or any other agreement that would give the company ownership or access to his rights of relationships

Reasoning Because the company and the taxpayer did not enter into any written agreement of employment or ownership regarding the rights, or any covenant not to compete, the company did not have rights to the taxpayer’s rights to relationships. Therefore, the company only benefited from these rights when the taxpayer was associated with the company, giving the taxpayer full ownership of the rights. Because the company and the taxpayer did not enter into any written agreement of employment or ownership regarding the rights, or any covenant not to compete, the company did not have rights to the taxpayer’s rights to relationships. Therefore, the company only benefited from these rights when the taxpayer was associated with the company, giving the taxpayer full ownership of the rights.