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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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