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and deductions for the 6-month period ended June 30, 1987, were
included on Form 1120 filed by HPI for HPI's 1987 taxable year.
On June 30, 1987, HPI transferred all of its stock in Curtis
to Hachette Distribution, Inc., a Delaware corporation (HDI).
Curtis' income and deductions for the 6-month period ended
December 31, 1987, and for the 11-month period ended November 30,
1988, were included on Forms 1120 filed by HDI for HDI's 1987 and
1988 taxable years, respectively. In a merger consummated on
November 30, 1988, Hachette USA, succeeded to all the assets,
claims, debts, and liabilities of HPI and HDI.
At all times relevant to these cases, Curtis was a national
wholesale distributor of magazines. Its customers were local or
regional distributors who sold the magazines acquired from Curtis
to retail merchants. In accordance with established industry
practice Curtis billed its customers for the full number of
copies that it shipped to them, but granted them the legal right
to receive full credit for copies of magazines that they were
unable to sell. Curtis, in turn, was entitled to receive full
credit from the magazine publishers for these unsold copies.
Thus, the financial risk associated with returned merchandise was
ultimately and solely borne by Curtis' suppliers.
In computing its income for the taxable years in issue
Curtis properly elected under section 458 to exclude from gross
income the full amount of the sale price of copies returned by
its customers within the first 2-1/2 months of the following
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