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1.4 Counsel regarding the economic purchase of raw
materials.
1.5 Warehousing of the products in the United States.
In return, DPC was to receive 15 percent of the net price of the
products exported by FIL. The agreement further stated that it
could be terminated by either party with 30 days’ written notice.
From 1980 through 1989, DPC reported the payments received
from FIL under this agreement on its corporate income tax
returns. Then, by a letter dated January 9, 1990, FIL notified
DPC that it was terminating the 1980 agreement, effective in 30
days. The decision to end the agreement was made because, after
approximately 1986, FIL relied upon markets developed in Europe
for its product. FIL did, however, continue to purchase raw
materials from Deitsch International Sales Corporation (Deitsch
Sales), a U.S. corporation also owned by the Deitsch family.
Deitsch Sales obtained the materials from suppliers in the United
States and then sold and exported them to FIL at a profit. After
the 1990 letter, FIL also continued to make payments of 15
percent of the net price of its exported products, but DPC was no
longer the sole recipient. DPC was paid $662,500 in 1990 and
last reported “consulting income” under the 1980 agreement on its
1991 return in the amount of $189,995. The table below
summarizes FIL’s sales pattern for the years 1978 through 1994,
as stipulated by the parties:
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