M.S. Food Stores, Inc. - Page 23

                                       - 23 -                                         
          Capital Gain   65    ---   ---                                              
          Annuity Received by Mrs. Sutton     ---      13,065      $13,068            
          Inherited IRA                       ---      23,579      ---                
          Interest Income                     ---      605         ---                
                                       OPINION                                        
          The Corporate Petitioner                                                    
               Rebate and Coupon Checks                                               
               The corporate petitioner acknowledges that rebates are to be           
          considered in calculating its income.  In some instances, the               
          corporate petitioner recorded rebates as a reduction to cost of             
          sales and in other instances, where rebates had been credited               
          against amounts owed to wholesalers, the corporate petitioner               
          reflected the net costs.  Respondent agrees with that treatment.            
          To the extent, however, that the proceeds of rebate checks were             
          not accounted for by either of those methods, we hold that the              
          corporate petitioner had unreported income from rebate checks.8             
          In other words, if the rebate checks did not in some way reduce             
          cost of sales, then the cost of sales was overstated, and the               
          gross income was correspondingly understated.                               
               The parties also agree that the coupons result in income;              
          they disagree, however, as to the proper treatment of that                  
          income.  Respondent has determined that the corporate                       


          8 Petitioners have speculated that some rebate checks may                   
          have been rung up on the register, thereby being included in                
          income twice, once in cash register gross receipts and again as a           
          result of reducing cost of sales as a rebate.  Petitioners have             
          not established any such instances.                                         





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