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OPINION
A. Characterization of Payments
The parties devoted a significant portion of the trial
toward determining the proper characterization of the upfront
cash payments which Westpac received under the purchase contracts
at issue. Petitioner contends that such payments constitute
advance trade discounts; that is, the payments were made in sole
consideration of Westpac's obligation to purchase the volume of
goods stated in the contract. Petitioner points to Westpac's
obligation under each of the purchase contracts to repay a
prorated portion of the upfront cash payments if it failed to
satisfy its volume purchase commitment.7
6(...continued)
stipulated the amounts that Westpac is required to include in
income as a result of these payments. Therefore, the figures
determined by respondent in the deficiency notice do not coincide
exactly with those contained in the table above.
7 The McCormick and GTE Sylvania contracts contained an
express repayment obligation. While the Ambassador and American
Greetings contracts did not contain such an express provision,
petitioner's expert witness testified that such an obligation
existed implicitly pursuant to industry custom. The existence of
an implicit repayment obligation is confirmed by Westpac's
dealings with the greeting card manufacturers. Westpac
terminated its contract with American Greetings prior to
satisfying its volume purchase commitment. Upon termination,
Westpac issued a $406,243 check to American Greetings as a
repayment of its contract advance. Similarly, Westpac
contemplated terminating its contract with Ambassador prior to
satisfying its volume purchase commitment. In the course of
negotiations, Ambassador supplied Westpac with a calculation of
the amount of the upfront cash payment that Westpac would be
obligated to return. Westpac never questioned its repayment
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