Affiliated Foods, Inc. - Page 24

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               Although vendors designated a number of advertising                    
          activities that petitioner could engage in to make withdrawals              
          from the promotional accounts, petitioner could elect which of              
          those activities to conduct.  This fact, coupled with the fact              
          that petitioner rarely, if ever, made refunds of promotional                
          account funds, enabled petitioner to perform only those                     
          advertising activities that were profitable.  Petitioner could              
          pass on an unfavorable advertising offer and still earn the funds           
          allocated to the promotional accounts on a future date.                     
          Essentially, petitioner could carry a balance in a promotional              
          account until it wanted to perform a proposed advertising                   
          activity.                                                                   
               The majority of the funds withdrawn from the promotional               
          accounts were treated as art and printing department and                    
          advertising department revenue.  Petitioner was not merely a                
          conduit with respect to these funds; these funds were substantial           
          revenue for a large scale advertising activity.8  Petitioner                
          received these payments for materials and services rendered.                
          Petitioner advertised for the vendors, and it was paid for this             
          work.  Consequently, these amounts are earnings to petitioner,              


          8    Petitioner's art and printing department alone had a staff             
          of 24 professional artists and printers.  This department had               
          expenditures of almost $2 million a year for 1989 and 1990.                 
          Furthermore, petitioner's advertising department had expenditures           
          of over $1 million a year for both 1989 and 1990.                           





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