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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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