The taxpayer, and a limited partnership of which he was a member, agreed to pay an advance royalty of $20,000 per designated territory for rights to distribute within the territory a customer loyalty card, with a $15,000 unpaid balance of the prepaid royalty being acknowledged by the taxpayer to be a limited recourse amount.
As part of the same arrangements, the taxpayer and the partnership entered into an agreement with another corporation ("Crusader") to market and distribute the card within the territories specified in the licences for $15,000 per licence territory for the purpose of ensuring that the Appellant and the partnership achieved minimal levels of performance. The fees that Crusader was to receive for its marketing efforts under the operating agreements were to be offset against the amount of performance bonds, so that if those fees had not been fully offset by the expiration of the operating agreement, the remaining amount of those performance bonds were required to be paid to the taxpayer and the partnership as damages.
The Tax Court Judge was correct in finding that the revenue guarantee provisions of the performance bonds constituted an at-risk adjustment in the amount of $15,000 per licence.