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entities, petitioner and its related entities clearly made up a
controlled group of taxpayers for purposes of section 482.
Petitioner supplied 95 percent of its related entities'
inventory. Petitioner's sales to these entities were therefore
"controlled sales" for section 482 purposes.
Petitioner booked sales to both related and unrelated entities
at the time the merchandise was delivered, debiting its accounts
receivable and crediting its sales. The related stores accounted
for delivery of this merchandise as a purchase by crediting their
accounts payable to petitioner and debiting purchases. All the
accounting was performed by petitioner.
Petitioner sold merchandise to all it customers (both the
related and unrelated stores) at the same price. However, at the
end of the year, after petitioner reviewed the financial results of
the entire operation of the controlled group, petitioner made
rebates only to its related stores. These rebates had the effect of
lowering the cost of the merchandise sold to the entities receiving
the rebates, which in turn reduced petitioner's income and
increased the incomes of the related stores.
Petitioner gave preferential rebates totaling $176,548 and
$155,000 in fiscal years 1991 and 1992, respectively. Petitioner
accounted for these rebates by crediting accounts receivable and
debiting sales, thereby eliminating the rebated sales from accrued
sales for Federal income tax purposes. For the related entities,
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