Affiliated Foods, Inc. - Page 17

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          records existed at one time showing who received the funds from             
          Mr. Clawson, petitioner destroyed these records.                            
                                       OPINION                                        
               Respondent determined that petitioner had increased                    
          advertising and food-show income in 1989 of $343,470 and                    
          $162,370, respectively, and increased advertising and food-show             
          income in 1990 of $281,409 and $255,509, respectively.                      
          Issue 1.  Advertising Income                                                
               In regard to respondent's 1989 and 1990 advertising income             
          determinations, the $343,470 and the $281,410 represent the                 
          balance of the promotional accounts at the end of each year in              
          issue.5  By including only the balance of the promotional account           
          in petitioner's income, respondent in effect determined that the            
          promotional account payments constituted gross income and the               
          promotional account disbursements were allowable deductions.                
          Petitioner asserts that it held the promotional account funds as            
          a nontaxable intermediary between the vendors and the member                
          stores, and therefore no amount of the promotional account funds            
          should be includable in its income for either 1989 or 1990.6                


          5    For 1990, petitioner's yearend balance in the promotional              
          accounts was $624,880; however, in her determination, respondent            
          treated the excess of the yearend balance less the prior yearend            
          balance ($343,470) as taxable income of $281,410.                           
          6    Since vendors withdrew $74,700 and $112,025 from the                   
          promotional accounts for the 1989 and 1990 food shows,                      
                                                             (continued...)           





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