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From 1984 until its bankruptcy in 1990, petitioner
maintained its principal office in either Carmel or Indianapolis,
Indiana. As part of the direct mail fundraising campaign
petitioner conducted from 1984 through 1989 pursuant to the
Contract, a Washington, D.C., office mailing address was
maintained for petitioner. Contributors were directed to send
their donations to the Washington, D.C., office mailing address.
During 1984 through 1989, about 79.6 million fundraising
letters were mailed under the Contract. Of the 79.6 million
letters, about 51.8 million were “prospect letters” and 27.8
million were “housefile letters”. The terms “prospect letter”
and “housefile letter” are discussed more fully infra. The
Contract provided that W&H was to receive as compensation, among
other things, mailing fees of $.05 per prospect letter mailed and
$.10 per housefile letter mailed. However, the Contract was a
“no-risk” contract for petitioner, in that petitioner was liable
to pay fundraising expenses only to the extent proceeds were
raised. If insufficient proceeds were raised to cover the
fundraising expenses, then W&H was liable to pay the excess
fundraising expenses. During the term of the Contract, W&H
advanced funds to conduct petitioner’s direct mail fundraising
campaign and, generally, was paid its fees only after other
fundraising expenses had been paid. Under the Contract,
petitioner was further guaranteed that, for the first 2 years of
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