Affiliated Foods, Inc., A Corporation - Page 4




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          promotions, allowances, and/or special buys on products, with the           
          condition that all offers must be a "real show special".                    
          Generally, the product promotional allowance was paid in cash at            
          the food show when the order was placed.  In our original                   
          opinion, we held that the amount of currency distributed by the             
          vendors to the member stores at the food shows was taxable to               
          petitioner.2  See Affiliated Foods, Inc. v. Commissioner, T.C.              
          Memo. 1996-505.  The Court of Appeals for the Fifth Circuit                 
          affirmed our reasoning on this issue and stated that these cash             
          rebates distributed at the food shows were properly characterized           
          as disguised patronage dividends.  See Affiliated Foods, Inc. v.            
          Commissioner, 154 F.3d at 533.                                              
               One of the sources for the cash used by the vendors to make            
          payments at the food shows was the funds deposited with                     
          petitioner in the promotional accounts.  In the present Rule 155            
          computation, respondent seeks to include in petitioner's taxable            
          income the funds withdrawn from the promotional accounts and                
          distributed at the food shows by the vendors.  Petitioner                   
          maintains that this inclusion is inconsistent with the decision             
          of the Court of Appeals for the Fifth Circuit that the funds held           


               2With appropriate substantiation, petitioner could have                
          deducted these amounts after reporting them as income.  See sec.            
          1382(a) and (b).  Petitioner, however, destroyed all                        
          documentation regarding the cash rebates distributed at the food            
          shows, except for those involving Western Family Foods, Inc.                




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