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default under that supply agreement.14 As a result, petitioner
was not obligated to make on each of those dates the annual
payment set forth in the April 15, 1999 note. In petitioner’s
books and records for each of the years ended January 30, 2001,
and January 30, 2002, petitioner reduced by $250,000 the balance
of its long-term notes payable. In each of petitioner’s tax
returns for those respective years, petitioner reported $250,000
as “Other Income--Reduction of Supplier Note Agreement”.
On March 9, 2001, petitioner executed a document entitled
“COMMERCIAL NOTE” (March 9, 2001 commercial note)15 payable to
SUPERVALU in the amount of $300,000. On or about the same date,
petitioner received a $300,000 check drawn on an account of
SUPERVALU. The March 9, 2001 commercial note provided in perti-
nent part:
FOR VALUE RECEIVED, Karns Prime and Fancy Food
Ltd. * * * (collectively the “Maker”), promise[s] to
pay to SUPERVALU * * * (“Lender”) * * * the principal
sum of Three Hundred Thousand and No/100 Dollars
($300,000.00), plus interest, all as set forth below.
14Instead of discussing whether petitioner complied with,
materially breached, and/or was in uncured default under the
April 16, 1999 supply agreement, for convenience, we shall
discuss only whether petitioner was in material breach of or
materially breached that supply agreement. However, our refer-
ences to whether petitioner was in material breach of or materi-
ally breached the April 16, 1999 supply agreement are intended
also to pertain to whether petitioner complied with and/or was in
uncured default under that supply agreement.
15By using the term “March 9, 2001 commercial note”, we do
not intend to suggest that for tax purposes there was a loan by
SUPERVALU to petitioner that was evidenced by that document.
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