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Respondent’s Adjustments
Respondent attached to the notice of deficiency an
explanation of his adjustments to petitioner’s tax liabilities
for the audit years. The explanation states that respondent has
determined that “the food show distributions” to petitioner’s
shareholders are both income to petitioner and nondeductible
patronage dividends paid by it to its members. Therefore, the
explanation continues, petitioner’s taxable income is increased
by $421,973, $489,685, and $144,122, for 1991, 1992, and 1993,
respectively.
OPINION
I. Introduction
During the audit years, petitioner, a wholesale food
purchasing cooperative, conducted one or more food shows a year
at which member stores met with vendors. Among other things, the
food shows were designed to encourage member stores to order from
petitioner the vendors’ products offered at the shows. Pursuant
to an agreement with petitioner, each vendor attending a show was
required to offer member stores special show discounts on the
vendor’s products offered at the show. Petitioner referred to
those special show discounts as “show money”. Vendors could make
show money available to member stores in one of two ways. First,
a vendor could offer a member store a discount on an order placed
with petitioner at the show, petitioner having agreed to honor
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Last modified: November 10, 2007