Kaps Warehouse, Inc. - Page 24

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            detailed and monthly updated computer records of the aging of the                         
            unrelated entities' accounts receivable.  Mr. Dunn, petitioner's                          
            office manager, ultimately recommended to petitioner's accountant                         
            the accounts to be written off.  In contrast, petitioner kept no                          
            records for the aging of accounts receivable of its related                               
            entities and had no comparable procedure with respect to these                            
            debts.  Petitioner did not consider the aging of its related                              
            entities' receivables to be a "problem".                                                  
                  Next, the evidence of petitioner's sales to the related                             
            entities in the years following the rebates at issue belies                               
            petitioner's claims that the receivables were uncollectible.                              
            Petitioner admitted that if it wrote off an account of an unrelated                       
            party, it would not continue to sell to that party in the next                            
            year.  But this has not been the case with petitioner's related                           
            entities.  Petitioner continued selling to the related entities,                          
            and in some instances, it actually increased its sales to the                             
            related entities following the year of the rebate.  Accordingly, it                       
            would not appear that petitioner took seriously the uncollectible                         
            accounts from its related entities.                                                       
                  Finally, through the testimony of its accountant, Mr.                               
            Lamprecht, petitioner stated its belief that its income was too                           
            high during both years at issue.  Petitioner therefore attempted to                       
            reduce its taxable income by extending the rebates.                                       

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Last modified: May 25, 2011