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the years through internal growth and acquisitions. Petitioner
is an accrual basis taxpayer that keeps its books and records,
and files its Federal income tax returns, on a taxable year
ending (TYE) June 30th.
In connection with its January 3, 1986, purchase of the
magazine Ladies' Home Journal (LHJ), Meredith assumed certain
contingent obligations of the seller, Family Media, Inc. (FMI),
relating to an intangible asset designated "subscriber
relationships". Meredith agreed to produce and deliver copies of
LHJ to subscribers already existent on the acquisition date for
the remainder of their subscription terms, necessarily entailing
fulfillment costs for which Meredith was to receive no
reimbursement from FMI. Such costs included, but were not
limited to, expenses associated with paper, printing, editorial
salaries, and delivery (editorial costs). The fulfillment costs
were contingent for two reasons: (1) The costs were variable;
and (2) LHJ subscribers were permitted to request cash refunds
for the remaining terms of their subscriptions at any time, for
which FMI remained solely liable. The contingent expenditures at
issue herein were editorial costs incurred by Meredith during its
TYE 1990.
The years before the Court in Meredith I were petitioner's
TYE 1986 and TYE 1987. Meredith I addressed the issues of
petitioner's entitlement to amortization deductions with
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