Westpac Pacific Foods - Page 17




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          v. Commissioner, 353 U.S. 180 (1957); S. Garber, Inc. v.                    
          Commissioner, 51 T.C. 733 (1969); Farrara v. Commissioner, 44               
          T.C. 189 (1965).                                                            
               Petitioner contends that John Graf Co. v. Commissioner, 39             
          B.T.A. 379 (1939), requires that trade discounts not be                     
          recognized as income prior to the elimination of all                        
          contingencies to which their recognition is subject.  The                   
          taxpayer in John Graf Co., a beverage retailer, instituted a                
          lawsuit against a beer producer regarding the quality of beer               
          that the taxpayer had previously purchased.  As part of the                 
          agreement by which the parties settled the matter, the beer                 
          producer agreed to deliver to the taxpayer, free of charge, 500             
          cases of beer having a posted price of $1.10 per case.  In                  
          addition, the manufacturer agreed to provide the taxpayer with              
          incremental discounts totaling $2,450 on additional purchases.              
          If the taxpayer refused to order any beer after delivery of the             
          first 500 free cases, such failure to order would constitute a              
          waiver of the balance of the credit allowance.  Id. at 380.                 
               During the taxable years at issue, the taxpayer's purchases            
          entitled it to a discount of $177.50 over the $550 of free                  
          product it received.  In ruling on the tax consequences of the              
          taxpayer's settlement, the Board held that the taxpayer                     
          recognized income only to the extent of the discount which it               
          actually received in the taxable year in issue.  Id. at 385.                






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