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In his reply brief, respondent describes how petitioner
should have accounted for the rebates that respondent deems
petitioner received on account of the vendors’ currency payments
to member stores. Without distinguishing between petitioner-
delivered and vendor-provided currency, respondent states:
“Affiliated should have reduced its cost of goods sold to reflect
these currency rebates and thereby increased its income. This is
what happened, for example, with those rebates that took the form
for a reduction in the invoice price (i.e., ‘off invoice’).”
That, however, is not what happened with respect to off-invoice
discounts. Petitioner’s chief financial officer, Tammie Coffee,
gave uncontradicted and convincing testimony that, in the case of
show money paid by way of an off-invoice discount, the discount
reduced both the cost of the goods sold and petitioner’s receipt
from the sale of the goods (its gross receipt). The net effect,
of course, is that any off-invoice discount had no effect on
petitioner’s gross income.8 Nor did any payment of show money
from vendor-provided currency have any effect on gross income,
since petitioner ignored it in determining both the cost of the
8 Because petitioner had a fixed right to reimbursement at
the time it accorded an off-invoice discount to a member store,
there should be no difference between the time it accrued the
receipt from the sale and the time it reduced its cost for the
goods sold. See Rev. Rul. 84-41, 1984-1 C.B. 130 (citing Wolfors
v. Commissioner, 69 T.C. 975, 983-985 (1978)).
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Last modified: November 10, 2007