G. D. Searle & Co. v. Comm'r of Revenue, Dkt. No. 12836-79

CourtUnited States Tax Court
Writing for the CourtWILES
PartiesG. D. SEARLE & CO. AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF REVENUE, Respondent
Decision Date04 February 1987
Docket NumberDkt. No. 12836-79

88 T.C. 252
88 T.C. No. 16

G. D. SEARLE & CO. AND SUBSIDIARIES, Petitioners
v.
COMMISSIONER OF REVENUE, Respondent

Dkt. No. 12836-79

United States Tax Court

Filed February 4, 1987.


TABLE OF CONTENTS
+-----------------------------------------------------------------------------+
                ¦ ¦ ¦¦Page¦
                +------------------------------------------------------------------------+----¦
                ¦Headnote ¦255 ¦
                +------------------------------------------------------------------------+----¦
                ¦Introduction and Statement of Issues ¦256 ¦
                +------------------------------------------------------------------------+----¦
                ¦Findings of Fact ¦257 ¦
                +------------------------------------------------------------------------+----¦
                ¦I. ¦History and Background of G.D. Searle & Co. ¦257 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Petitioner ¦¦257 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. SCO ¦¦259 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦II. ¦History and Background of SCO's Products ¦259 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Aldactone and Aldactazide ¦¦259 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Banthine and Pro-Banthine ¦¦261 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Flagyl ¦¦262 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Lomotil ¦¦264 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦E. Ovulen and Demulen ¦¦265 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦F. Serenace ¦¦267 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦III. ¦Pharmaceutical Business of Petitioner and Its Subsidiaries ¦268 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦IV. ¦Historical Development of the Puerto Rican Operations of ¦269 ¦
                ¦ ¦Petitioner and SCO ¦ ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Tax Incentives for Puerto Rican Operations ¦¦269 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Planning and Formation of SCO ¦¦270 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. SCO's Puerto Rican Tax Exemption Grants ¦¦273 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Initiation of Pharmaceutical Manufacturing by SCO ¦¦274 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦E. Transfers of Intangible Property to SCO ¦¦276 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦F. Marketing Agreement ¦¦277 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦V. ¦SCO's Manufacturing Activities ¦278 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Acquisition of Chemical Manufacturing Facility at Caguas ¦¦278 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Construction of Pharmaceutical Manufacturing Facilities at ¦¦279 ¦
                ¦ ¦Caguas ¦¦ ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Management and Personnel ¦¦280 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Manufacturing and Related Activities ¦¦280 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦1. Products Manufactured and Sold ¦¦280 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦2. Production Planning and Scheduling ¦¦283 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦3. Inventory Control and Purchasing ¦¦284 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦4. Chemical Sourcing ¦¦286 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦5. Chemical Manufacturing ¦¦290 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦6. Pharmaceutical Manufacturing and Packaging ¦¦291 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦7. Production Tickets ¦¦293 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦8. Quality Control ¦¦295 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦9. Product Recalls ¦¦296 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦VI. ¦Sale and Distribution of SCO's Productions ¦298 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Identity of SCO's Customers ¦¦298 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Orders of SCO's Products ¦¦299 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Billing Procedures ¦¦300 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Other Distribution Procedures ¦¦301 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦VII. ¦Petitioner's Marketing Operations ¦301 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Introduction ¦¦301 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Marketing of SCO's Products ¦¦302 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦1. Sales Representation ¦¦302 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦2. marketing and Sales Administration ¦¦305 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦3. SCO's marketing Fee Payments to Petitioner ¦¦305 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦4. SCO's Other Marketing Expenses ¦¦306 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦VIII. ¦Research and Development Activities ¦307 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Introduction ¦¦307 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Research and Development Facilities ¦¦309 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦1. Petitioner's Facilities ¦¦309 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦2. SCO's Facilities ¦¦311 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Regulatory Requirements ¦¦312 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Petitioner's Regulatory Affairs Services Related to SCO's ¦¦313 ¦
                ¦ ¦Products ¦¦ ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦E. Other Research and Development Activities Related to SCO's ¦¦318 ¦
                ¦ ¦Products ¦¦ ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦1. Petitioner's Activities ¦¦318 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦2. SCO's Activities ¦¦319 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦F. Research and Development of New Pharmaceutical Products ¦¦319 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦1. Aspertame ¦¦320 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦2. Norpace ¦¦321 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦3. Depepsen ¦¦322 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦4. Cu-7 ¦¦ ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦G. Petitioner's Research and Development of Synthetic Steroid ¦¦323 ¦
                ¦ ¦Chemicals ¦¦ ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦H. SCO's Payments for Research and Development ¦¦323 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦IX. ¦Regulatory Oversight and Legal Matters ¦324 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Introduction ¦¦324 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. 1975 FDA Investigation ¦¦325 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Product Liability Insurance ¦¦328 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Pending Lawsuits ¦¦329 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦X. ¦Accounting and Administration ¦331 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. SCO's Finance and Accounting Department ¦¦331 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Petitioner's Information Systems Department ¦¦331 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. Payment of Administrative Services ¦¦331 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦XI. ¦Financial Results of Petitioner's and SCO's Operations ¦332 ¦
                +-------+----------------------------------------------------------------+----¦
                ¦ ¦A. Petitioner's Acquisitions ¦¦332 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦B. Sales Statistics ¦¦333 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦C. SCO's Operations ¦¦336 ¦
                +-------+---------------------------------------------------------------++----¦
                ¦ ¦D. Investment of SCO's Funds ¦¦337 ¦
...

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27 practice notes
  • Medchem (P.R.), Inc. v. C.I.R., No. 01-2251.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • July 10, 2002
    ...the mid-1970s, when Congress enacted legislation approximating the current version of 26 U.S.C. § 936. See G.D. Searle & Co. v. Comm'r, 88 T.C. 252, 350-52, 1987 WL 49272 (1987) (describing the genesis of § Section 1051 of the 1976 Tax Reform Act added a new U.S.Code section, 26 U.S.C. § 93......
  • Podd v. Commissioner, Docket No. 20225-93.
    • United States
    • United States Tax Court
    • June 30, 1998
    ...58 T.C. 10, 23 (1972); Seagate Tech., Inc. & Consol. Subs. v. Commissioner, supra at 164; G.D. Searle & Co. v. Commissioner [Dec. 43,685], 88 T.C. 252, 359 (1987). Whether the Commissioner's discretion has been exceeded is a question of fact. American Terrazzo Strip Co., Inc. v. Commissione......
  • Elec. Arts, Inc. v. Comm'r of Internal Revenue, Nos. 2433–99
    • United States
    • United States Tax Court
    • March 22, 2002
    ...and we briefly summarized the purpose and history of the statute in accordance with our analyses in G.D. Searle & Co. v. Commissioner, 88 T.C. 252, 350–351, 1987 WL 49272 (1987), and Coca–Cola Co. & Subs. v. Commissioner, 106 T .C. 1, 21, 1996 WL 4126 (1996). From section 262 of the Revenue......
  • Eli Lilly & Co. v. C.I.R., Nos. 86-2911
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 27, 1988
    ...482 even where tax considerations formed part of the motivation for the transaction in question. See G.D. Searle & Co. v. Commissioner, 88 T.C. 252, 363-67 (1987); Eli Lilly & Co., 84 T.C. at 1119-21; Bank of America v. United States, 79-1 Page 862 U.S.Tax Cas. (CCH) p 9170 (N.D.Cal.1979). ......
  • Request a trial to view additional results
27 cases
  • Medchem (P.R.), Inc. v. C.I.R., No. 01-2251.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • July 10, 2002
    ...the mid-1970s, when Congress enacted legislation approximating the current version of 26 U.S.C. § 936. See G.D. Searle & Co. v. Comm'r, 88 T.C. 252, 350-52, 1987 WL 49272 (1987) (describing the genesis of § Section 1051 of the 1976 Tax Reform Act added a new U.S.Code section, 26 U.S.C. § 93......
  • Podd v. Commissioner, Docket No. 20225-93.
    • United States
    • United States Tax Court
    • June 30, 1998
    ...58 T.C. 10, 23 (1972); Seagate Tech., Inc. & Consol. Subs. v. Commissioner, supra at 164; G.D. Searle & Co. v. Commissioner [Dec. 43,685], 88 T.C. 252, 359 (1987). Whether the Commissioner's discretion has been exceeded is a question of fact. American Terrazzo Strip Co., Inc. v. Commissione......
  • Elec. Arts, Inc. v. Comm'r of Internal Revenue, Nos. 2433–99
    • United States
    • United States Tax Court
    • March 22, 2002
    ...and we briefly summarized the purpose and history of the statute in accordance with our analyses in G.D. Searle & Co. v. Commissioner, 88 T.C. 252, 350–351, 1987 WL 49272 (1987), and Coca–Cola Co. & Subs. v. Commissioner, 106 T .C. 1, 21, 1996 WL 4126 (1996). From section 262 of the Revenue......
  • Eli Lilly & Co. v. C.I.R., Nos. 86-2911
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • October 27, 1988
    ...482 even where tax considerations formed part of the motivation for the transaction in question. See G.D. Searle & Co. v. Commissioner, 88 T.C. 252, 363-67 (1987); Eli Lilly & Co., 84 T.C. at 1119-21; Bank of America v. United States, 79-1 Page 862 U.S.Tax Cas. (CCH) p 9170 (N.D.Cal.1979). ......
  • Request a trial to view additional results
1 firm's commentaries
  • Medtronic Part Deux: The Best Method Is Yet To Come?
    • United States
    • Mondaq United States
    • September 30, 2022
    ...would have been considered if presented. 5. Sundstrand Corp. v. Commr., 96 T.C. 226, 353 (1991) (citing G.D. Searle & Co. v. Commr., 88 T.C. 252, 358 (1987), and citing Eli Lilly & Co. v. Commr., 84 T.C. 996, 1131 (1985), aff'd. on this issue, rev'd in part and rem'd, 856 F.2d 855 (7th Cir.......

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