Affiliated Foods, Inc. - Page 32

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          Western product had a show allowance of a dollar a case, and the            
          member store bought 100 cases, then he would give the member                
          store $100.                                                                 
               Petitioner's actions with respect to the Western money                 
          reveal the substance of the food-show cash disbursements.                   
          Petitioner was distributing its money to its member stores, and             
          hence its shareholders, and the distributions were based on the             
          amount of product purchased, or business done, by the                       
          shareholder.  This is the essence of a patronage dividend.                  
          However, rather than treat these distributions as patronage                 
          dividends, where deductibility would be conditioned on the                  
          distributions' meeting certain statutory requirements, petitioner           
          merely excluded the amounts from income, achieving the same tax             
          effect as a patronage dividend (provided the shareholders                   
          included the cash in their income).  Moreover, the use of cash              
          and destruction of records invite suspicion that there was no               
          intent that the income be reported on any level.                            
               The vendors, not petitioner, were conduits with respect to             
          the food show cash transactions.  Petitioner was not a nontaxable           
          intermediary with respect to the food show cash disbursements               
          arising from the promotional accounts.  Ford Dealers Advertising            
          Fund, Inc. v. Commissioner, 55 T.C. 761 (1971).  Similarly, as              
          for the food show cash disbursements arising from the check-                
          cashing transactions, petitioner exercised dominion and control             






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