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goods sold and the gross receipt from the sale, and respondent
has not challenged that treatment.
While he has misunderstood how petitioner accounted for the
off-invoice discounts, we assume that respondent would agree
that, as between petitioner and the vendors, any off-invoice
discounts or deemed rebates were trade discounts, which reduced
the cost to petitioner of merchandise purchased from the vendors.
See sec. 1.471-3(b), Income Tax Regs. (cost of merchandise
purchased during taxable year is invoice price less “trade” and
certain other discounts); Rev. Rul. 84-41, 1984-1 C.B. 130, 130
(“Trade discounts represent adjustments to the purchase price
granted by a vendor.”). Putting aside for the moment
petitioner’s status as a cooperative corporation, it is difficult
to see why the rebates that respondent deems petitioner received
from vendors and passed on without alteration to member stores on
sales made to those stores should not also be deemed to reduce
petitioner’s receipts from those sales. We have found that the
special show discounts were based on the quantity of merchandise
member stores ordered from petitioner at the food shows. The
discounts were an inducement to greater sales. If petitioner is
deemed to have paid any show money, its purpose was to increase
sales (and profits9) by reducing prices. Those deemed payments,
9 Petitioner ignored special show discounts in applying its
markup to food show sales. See supra note 3.
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Last modified: November 10, 2007