- 56 -
($1,823,172). Petitioners treated the remainder of the net
proceeds ($1,179,578) of the sale of the second warrant as long-
term capital gain. Moreover, CV described the second warrant in
its Forms 10-Q for the quarters ended March 31 and June 30, 1987,
as having been received “in conjunction with * * * a volume
purchase agreement” and treated a portion the net proceeds of the
sale of the warrant as a “volume purchase rebate”. Petitioners’
treatment of the second warrant for tax and financial reporting
purposes indicates that the warrant was in the nature of a trade
or volume purchase discount.20
Consequently, based on our consideration of all the facts
and circumstances in the instant case, we find that the second
warrant represented a trade discount received by CV from Sun in
the amount respondent determined is includible in petitioners’
income; i.e., the net proceeds realized by CV from its sale.21
20
The fact that only a portion of the net sale proceeds was
treated as a volume purchase discount merely indicates that CV
took the position that the amount of the discount was to be
determined at the time that the second warrant first became
exercisable and does not affect the admission as to its
character. As discussed below, we need not address the
appropriate time for measuring the amount of that discount.
21
Respondent contends that the full amount of the net proceeds
of the sale constitutes a trade discount, but notes that
petitioners may argue that the appropriate time for measurement
of the amount of discount is the time at which the second warrant
first became exercisable, which is the position petitioners took
in their return for 1987. Respondent further concedes that, in
the event we decide that the appropriate date for recognition of
the amount of the discount is the date used in petitioners’
(continued...)
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