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Foretravel's Incentive Program
Petitioner argues that the incentive payments to the
dealerships are excludable from gross income, or in the
alternative, are deductible as ordinary and necessary business
expenses. Respondent argues that in substance petitioner's
incentive payments were contributions to capital and were not
reductions in sales prices or deductible under section 162. We
agree with petitioner.
Petitioner concedes that it erroneously claimed the
incentives as bad debts for both years in issue. This fact is
not fatal to petitioner's claim that the payments were actually
incentive payments where, as here, petitioner provides thorough
and credible evidence showing that the payments were mistakenly
reported as bad debts. We look at the true nature of the
payments despite the labels and bookkeeping entries used by
petitioner. B. Forman Co. v. Commissioner, 453 F.2d 1144, 1160
(2d Cir. 1972) affg. in part, revg. in part and remanding 54 T.C.
912 (1970); Burnett v. Commissioner, 356 F.2d 755 (5th Cir.
1966), remanding 42 T.C. 9 (1964).
Respondent argues that the incentive payments, or rebates,
are not excludable from petitioner's gross income or deductible
expenses because the payments were unrelated to performance, and
there was no set sales volume that the dealer had to meet in
order to qualify for a rebate. Respondent, citing Sun
Microsystems, Inc. v. Commissioner, T.C. Memo. 1993-467, contends
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