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of $628,632 before the rebate and $668,632 after the rebate; (2)
was in a profit position both before ($13,544) and after ($53,544)
the rebate; and (3) had sufficient current assets to cover its
current liabilities (i.e., it had sufficient short term liquidity
in fiscal year 1992 to cover the accounts payable written off via
the rebate).
Clearly, KAW's financial statements do not reflect that its
accounts payable to petitioner were uncollectible in the amount of
the rebate. Rather, in our opinion, petitioner gave the rebate in
order to shift income from itself to KAW, where the income would be
taxed at between 15 to 25 percent compared to petitioner's 34-
percent tax rate.
2. Kapsco
There is no evidence that Kapsco's accounts payable to
petitioner were partially worthless. In fiscal year 1991,
petitioner gave rebates totaling $120,000 to Kapsco. These rebates
were given to four unincorporated Kapsco units (Idaho Falls--Park,
Pocatello, Rigby, and Rexburg). Because these particular entities
did not have strong financial conditions, Mr. Lamprecht believed
that the accounts payable were uncollectible, thereby justifying
the rebates to Kapsco.
However, Kapsco's financial statement reflects that it was
capable of meeting its accounts payable obligation. It is
irrelevant whether the financial condition of the four
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