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suspense account that needed to be adjusted later in order to
reclassify the rebates. Golden did not reclassify the incentive
payments for financial accounting purposes because he felt that
doing so would not change the consolidated financial statements
prepared by Axley & Rode. Golden failed to reclassify the
rebates, and when the Axley & Rode tax department prepared
petitioner's Federal corporate income tax returns, nothing
indicated that rebates to the dealers existed. When Golden
reviewed the completed tax returns, he compared the results with
preliminary calculations he made using the financial statements,
but he failed to notice that the incentive payments had not been
reclassified. Weaver reviewed petitioner's Federal corporate
income tax returns for the years in issue, but he failed to
realize that Axley & Rode had not reclassified the incentive
payments. As a result, petitioner reported the rebates as bad
debts on its tax returns for the years in issue. The incentive
payments were booked on the subsidiaries' financial statements
for the years 1989 and 1990 as other income. For the years in
issue, the subsidiaries reported the incentive payments as income
in an amount equal to the bad debt deductions taken by
petitioner.
OPINION
Deduction for Payments Made in Connection With Northwest
The differences between the parties come down to a basic
difference in the analysis and interpretation of the events that
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