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petitioner never sold more than the number of boxes sold in the
year ending 1985.
The SCP contract began in June 1985, and the first sales
under the contract were reported on petitioner's tax return for
the year ending 1986. Petitioner showed losses on its tax
returns for all the years beginning with and following year
ending 1986.
The SCP contract provided for an automatic 5-year extension
absent notice of revocation given 1 year before its June 15,
1990, expiration date. In 1990, the SCP contract was extended
automatically for 5 years when petitioner did not give SCP a
notice of cancellation by June 16, 1989.
The Canelos growers did not pay U.S. income taxes on their
share of the profits earned under the SCP contract.
Petitioner, the Canelos growers, and SCP terminated the SCP
deal and extinguished all their obligations and business
relationships under the SCP contract effective May 14, 1993. As
part of the termination agreement and settlement of accounts
between the Canelos group and SCP, the Canelos brothers and their
related entities repaid advances SCP had made to petitioner.
The Canelos Organization
During the years in issue, the Canelos brothers used Canelos
Hermanos, an unincorporated business association, as the name of
the farming operations they jointly owned and operated. Canelos
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