- 24 -
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The majority of the funds withdrawn from the promotional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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