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Termination of the SC-ABS Agreement
By the Concept-Chase Lincoln agreement, Chase Lincoln
agreed to waive its annual fee for the first year of a member’s
participation in the credit card program. By the SC-ABS
agreement, ABS agreed to pay any annual fees charged by Chase
Lincoln during the remaining term of the SC-ABS agreement. For
some members, their second year of participation in the credit
card program began in August or September 1987. Chase Lincoln
charged a membership fee for that year (the second year fee) and
ABS was unable to obtain a waiver. ABS issued checks to members
reimbursing them for the second year fees, but a substantial
amount of those checks were dishonored by ABS’s bank. Petitioner
considered ABS in breach of the SC-ABS agreement and terminated
that agreement by a letter to ABS dated December 29, 1987 (the
December 29 letter). The December 29 letter requested ABS to
comply with Article 9 of the SC-ABS agreement, “specifically
including returning to the Club all lists of Sierra Club
members”.
Petitioner’s Receipts
Petitioner’s receipts from the credit card program were
$6,021 and $303,225, for its taxable years ending September 30,
1986 and 1987, respectively.
OPINION
I. Introduction
Respondent determined deficiencies in petitioner’s 1986 and
1987 Federal income taxes based, in part, on adjustments made
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