Affiliated Foods, Inc., A Corporation - Page 2




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               of R’s adjustments is an increase in P’s gross income                  
               for each of the years in question in the amount of P-                  
               delivered currency paid by vendors to member stores.                   
                    1.  Held:  P is not collaterally estopped from                    
               challenging R’s adjustments by our report in Affiliated                
               Foods, Inc. v. Commissioner, T.C. Memo. 1996-505, affd.                
               in part, revd. in part and remanded 154 F.3d 527 (5th                  
               Cir. 1998).                                                            
                    2.  Held, further, the payments that R charges P                  
               with making to member stores are properly characterized                
               as trade discounts.  They were not paid with reference                 
               to P’s net earnings but merely passed along the price                  
               adjustments that P was entitled to on account of the                   
               orders placed by the member stores at the food shows.                  
               They reduce P’s gross sales and are not defective                      
               patronage dividends.                                                   

               William A. Hoy, for petitioner.                                        
               George E. Gaspar and Mark E. O’Leary, for respondent.                  


               HALPERN, Judge:  By notice of deficiency dated April 22,               
          2004, respondent determined deficiencies in petitioner’s Federal            
          income tax of $143,978, $166,493, and $11,101 for petitioner’s              
          taxable (fiscal) years ended September 30, 1991, October 2, 1992,           
          and October 1, 1993, respectively (the audit years).  Petitioner            
          is a corporation operating on a cooperative basis (a purchasing             
          cooperative), whose shareholder-patrons operate retail grocery              
          stores.  The issues for decision concern the proper treatment of            
          certain payments made to petitioner’s shareholder-patrons at food           
          shows petitioner conducted during the audit years.                          








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