Kaps Warehouse, Inc. - Page 5

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                  Petitioner performed all accounting functions for itself,                           
           Kapsco, NPC, and KAW.                                                                      
           Volume Discounts Petitioner Received From Its Suppliers                                    
                  Petitioner received volume discounts from its suppliers.  The                       
           record does not indicate the amount of the volume discounts, the                           
           effect the discounts had on petitioner's financial position, or the                        
           sales volume petitioner had to maintain in order to obtain the                             
           volume discounts.                                                                          
           Petitioner's Sales and "Rebates" Extended to Petitioner's Related                          
                  Petitioner sold the same items to related and unrelated stores                      
           at the same price.  However, petitioner gave "rebates" to certain                          
           of its related entities, as follows:                                                       
                             1991                                 1992                                
                                    Amount                                     Amount                 
           Kapsco stores                                    NPC               $115,000                
           Idaho Falls--Park  $46,000                                                                 
           Pocatello                46,000                  KAW                40,000                 
           Rigby                    14,000              Total                 155,000                 
           Rexburg                  14,000                                                            
           NPC                   56,548                                                               
           Total             176,548                                                                  
           Petitioner did not give rebates to the unrelated stores.                                   
                  The effect of the rebates was to lower petitioner's profits                         
           and increase the profits (or lower the losses) of the stores                               
           receiving the rebates.                                                                     
                  The taxable income of petitioner and the related entities                           
           before and after the rebates was as follows:                                               

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Last modified: May 25, 2011