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the increase in petitioner’s annual purchase requirement under
the March 9, 2001 supply agreement second amendment, i.e., an
increase of $5 million in required annual product purchases over
the $16 million in required annual product purchases set forth in
the April 16, 1999 supply agreement before its amendment by the
March 9, 2001 supply agreement second amendment. (We shall refer
to such $5 million increase as the $5 million increase in peti-
tioner’s annual purchase requirement.) As a result, petitioner
earned under the March 9, 2001 supply agreement second amendment
a sales rebate for the annual period ended March 9, 2002, in an
amount equal to the annual payment for that period set forth in
the March 9, 2001 commercial note, and such rebate offset such
annual payment. For the annual period ended March 9, 2003,
petitioner did not meet the $5 million increase in petitioner’s
annual purchase requirement. As a result, petitioner earned
under the March 9, 2001 supply agreement second amendment a sales
rebate of $86,573.64 for the annual period ended March 9, 2003,
which was $4,929.19 less than the annual payment for that period
set forth in the March 9, 2001 commercial note. Such rebate
offset $86,573.64 of such annual payment, and petitioner paid the
balance of such annual payment (i.e., $4,929.19).
On June 13, 2000, petitioner, which used the accrual method
of accounting, timely filed Form 1120, U.S. Corporation Income
Tax Return (petitioner’s return), for its taxable year ended
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