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income tax, financial, accounting, and regulatory reporting
purposes. Petitioner reported about 50 to 75 percent of the
annual membership fees it received each year and deferred the
balance to the next year. Petitioner reported the deferred
portion as income in the following year for tax, financial, and
regulatory purposes.
7. Joint Venture Agreement
On March 26, 1986, petitioner and Fidelity Bank & Trust Co.
(Fidelity) signed a joint venture agreement under which: (a)
Fidelity agreed to market petitioner's MasterCards to some of its
customers, (b) petitioner agreed to service the accounts (send
periodic statements, receive and process payments, handle
merchant charge authorizations, respond to customer inquiries,
etc.), and (c) Fidelity and petitioner agreed to divide any
profits earned on the accounts. Petitioner estimated its
servicing costs based on its actual 1985 costs of servicing
MasterCard accounts and its budgeted 1986 costs. Under the
agreement, petitioner received a monthly servicing fee of $2 per
month per account or $24 per year for the first 12 months. After
the first 12 months, upon 60 days’ notice to Fidelity petitioner
could raise the monthly servicing fee to cover actual increases
in expenses in servicing the accounts.
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