A lawsuit recently was filed challenging an assessment of franchise and excise tax resulting from the Department of Revenue’s disallowance of expenses paid to an affiliate. The department maintains that a portion of the affiliated company expenses should have been reported as intangible expenses. In particular, the assessment is based on the department’s determination that a portion of the payments made to purchase merchandise developed by an affiliated company constituted an intangible expense. The taxpayer is challenging the determination. It is noteworthy that the department’s audit division is reviewing affiliated party transactions and taking the position that some intercompany expenses are “embedded royalties.” J.C. Penney Corp., Inc. v. Roberts, Case No. 13-1578-IV (Davidson County Chancery Court). If you would like to discuss this issue further, please contact the attorneys of Bradley Arant Boult Cummings LLP.