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Although the overall evidence of the agreements between
petitioner and the vendors with respect to the promotional
accounts is sparse, particularly with respect to the oral
agreements, we believe the best evidence of the substance of such
agreements was the agreement with P&G, as there was both written
and testimonial evidence concerning that agreement.
Based on all the facts and circumstances, we find that a
vendor would inform petitioner that it was offering an
advertising program to promote its product. The amount offered
for performing was not only petitioner's actual cost, but its
cost plus an allowance. Also, if the advertising was done in
connection with a product price promotion, the amount offered for
advertising was determined by multiplying a specified rate by the
volume of the product sold. If petitioner accepted the proposal
and performed the advertising, it would deduct the corresponding
allowance from the vendor's promotional account and provide the
vendor with documentation validating the deduction.
The majority of the withdrawals from the promotional
accounts were related advertising promotions. By conducting
advertising activity for the vendors, petitioner generated
substantial amounts of revenue for its art and printing
department and its advertising department. These departments
were an important part of petitioner's business, as indicated by
petitioner's annual reports.
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