Daniel E. and Karen A. Harkins - Page 15




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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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