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Mr. Davis participated in the 1989 and 1990 food shows on
behalf of P&G. He requested a cash disbursement from the P&G
promotional account to use at the food show. Then he distributed
the cash product promotional allowances at the food show as an
incentive to buy P&G food brands. The product promotional
allowances available were set forth in the food-show book. The
food show sales represented a significant portion of Mr. Davis'
annual sales; for example, he sold over 60 percent of his annual
volume of Pringle's Potato Chips at the food show. If Mr. Davis
did not pass out the entire amount of the cash disbursed to him
for the food show, he returned the remainder to petitioner.
Western/Clawson Transactions
Western is a corporation which buys and markets private
label products for the grocery industry. It is called a
"sourcing company", because it does not produce goods; rather, it
contracts with manufacturers to produce the goods it sells under
its private label. Petitioner purchases Western's private-label
goods. These goods are then shipped from Western to petitioner,
and petitioner sells them to its member stores.
Petitioner owns approximately 7 percent of Western's stock.
In 1989 and 1990, Western made payments to petitioner of $60,000
and $100,000, respectively. Petitioner did not include the
$60,000 and $100,000 distributions in its income, but now
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