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V. Marketing Funds Paid in 1997
We now turn to the issue of whether the marketing funds paid
in 1997 (for the last half of 1996) were subject to accrual under
the all events test in 1996. As to this payment, petitioners
contend that the theater company did not have a fixed right to
the marketing funds until Pepsi performed its review of whether
the theater company had complied with the agreement (i.e.,
sometime during the 60 days after the end of 1996).
With respect to every calendar year during the term of the
agreement, Pepsi agreed to provide the theater company marketing
funds based upon the amount of Pepsi products purchased during
each respective year. The marketing funds, however, were paid
semiannually and due from Pepsi within 60 days after the
completion of every 6-month period of each year. The marketing
funds related to each year were considered earned under the
agreement only if the theater company was in full compliance with
the performance requirements listed in the agreement during the
entire year.9 Entitlement to the marketing funds, we have
already concluded above, was not contingent on Pepsi's approving
the marketing funds, even though Pepsi had 60 days from the close
8(...continued)
“earned”.
9 We interpret the parties' usage of the word “earned” as
addressing when the theater company was entitled to those funds
under the agreement and not as a technical term addressing the
accrual of income for Federal tax purposes.
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