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respondent seeks to include them in income. Accordingly, Westpac
had “actual command over the property taxed-–the actual benefit
for which the tax is paid.” Corliss v. Bowers, 281 U.S. 376, 378
(1930). Petitioner makes a number of arguments in favor of a
contrary result which we address below.
1. Whether an Advance Trade Discount Can Constitute Gross
Income
Petitioner contends that an advance trade discount cannot
constitute an item of gross income. Petitioner looks to the
regulations promulgated under section 471 to support its
argument. Section 471 provides generally that a taxpayer is
required to take inventories whenever, in the opinion of the
Secretary, the use of inventories is necessary to clearly
determine the taxpayer's income. In such cases, inventory costs
must be calculated at the beginning and end of each year. See
sec. 1.471-1, Income Tax Regs. With respect to merchandise
purchased over the course of the taxable year, inventory cost is
defined as the invoice price less trade or other discounts. See
sec. 1.471-3(b), Income Tax Regs. Petitioner contends that,
pursuant to this last definition, trade discounts serve only as a
reduction to cost of goods sold and that any discounts paid in
advance of purchases cannot constitute gross income.
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