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Pepsi paid the flex and marketing funds associated with the
first half of 1996 (generally, January 1 to June 30) in 1996.5
The flex and marketing funds relating to the last half of 1996
(generally, July 1 to December 31) were paid by Pepsi in 1997.
On its 1996 tax return, the theater company reported in income
only the flex and marketing funds paid in 1996.
Respondent determined that the flex and marketing funds paid
in 1997, which related to the latter half of 1996, should have
been accrued by the theater company in 1996 as income and
included on its 1996 tax return. In their petition, petitioners
averred that the theater company did not have to accrue for 1996
any of the payments made in 1997 or 1996. Respondent now
concedes that petitioners did not have to report as income the
flex funds for the last half of 1996 which were paid in 1997.
Respondent still contends that the marketing funds for the latter
half of 1996 which were paid in 1997 should have been accrued by
the theater company in 1996 and included in petitioners' 1996 tax
return. Respondent maintains that the payments made in 1996 with
respect to the first half of that year were properly reported on
the theater company's and petitioners' 1996 tax returns.
5 The parties stipulate that the flex funds for the first
half of 1996 accounted for the period beginning Jan. 4, 1996, and
ending June 14, 1996. The parties do not provide any explanation
for this departure from the agreement.
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