Ohio Periodical Distributors, Inc., f.k.a. Scott Krauss News Agency, Inc., Ronald E. Scherer Trust and Linda S. Hayner Trust, Persons Other Than the Tax Matters Person - Page 2

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            the corporation under section 4581, resulting in the exclusion                            
            from gross income of the amount of the corporation's income                               
            attributable to returns from "qualified" sales of magazines and                           
            paperbacks, requires the making of a corresponding adjustment to                          
            cost of goods sold pursuant to section 1.458-1(g), Income Tax                             
            Regs.  More specifically at issue is the validity of section                              
            1.458-1(g), Income Tax Regs., which, if valid, would without                              
            dispute require a decision against petitioner.                                            
                  Ohio Periodical Distributors, Inc. ("Ohio Periodical" or                            
            "the corporation") has been operating as an S corporation in Ohio                         
            since 1984.  At all times relevant, the corporation prepared its                          
            Federal income tax returns using the accrual method of                                    
            accounting.  It was a wholesale distributor of magazines and                              
            paperback books.  Its customers were bookstores and other                                 
            businesses engaged in the retail sale of such merchandise to the                          
            public.                                                                                   
                  At all times relevant, in accordance with industry practice,                        
            Ohio Periodical sold more copies of paperbacks and magazines to                           
            its customers than it expected the customers to resell.  The                              
            corporation nevertheless billed its customers for the full number                         
            of copies thus sold to them.  However, in accordance with                                 
            industry practice, the customers had the legal right to receive                           




            1  Unless otherwise indicated, all section references are to                              
            the Internal Revenue Code in effect for the years at issue.                               



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Last modified: May 25, 2011