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general ledger showed the sale of Petroleum's propane inventory
by Petroleum, with Products as agent, to unrelated third parties
in bulk sales. Petroleum's handling of its propane inventory was
consistent with industry practice.
As agent for Petroleum, Products collected from third party
purchasers payments due to Petroleum, and it was responsible for
pursuing any unpaid propane bills. If, however, a bill remained
unpaid, it was Petroleum, not Products, that had to bear the
loss. For the taxable years in issue, Petroleum, Products, and
Texgas had the following volumes and values of propane
production:
Parties Propane Sales Propane Sales
1983 Volume (gallons) Value
Old Petroleum 8,521,279 $3,918,477
Products 290,982,398 142,699,588
Texgas 152,234,737 131,469,955
1984
Old Petroleum 5,349,081 1$2,307,907
Products 351,855,506 161,166,870
Texgas 159,090,931 136,352,438
1985
New Petroleum 7,930,188 $2,994,311
Products 289,494,801 116,275,633
Texgas 151,400,579 124,263,589
1 Petitioners concede that due to an accounting error, the $2,307,907
amount shown as Old Petroleum's propane sales for 1984, although reflected in
Petroleum's books, does not include gross receipts received by Old Petroleum
from its sales of 818,708 gallons of propane in December 1984. The highest
price per gallon of propane during 1984 was approximately 58 cents. Thus, Old
Petroleum's gross receipts from its December 1984 propane sales would have
been no more that approximately $475,000, resulting in annual gross receipts
of no more than $2,782,907 for that year.
For 1983, 1984, and 1985, respectively, Products sold
155,614,505, 156,887,148, and 155,225,544 gallons of propane to
Texgas. Given that Products was able to obtain all the propane
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