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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income the funds withdrawn from the promotional accounts and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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Last modified: May 25, 2011