- 32 -
therefore, should be considered as reducing its receipts from
sales.
We cannot improve on the Commissioner’s explanation in Rev.
Rul. 2005-28, 2005-1 C.B. 997, as to why any deemed payments
should be considered as reducing petitioner’s receipts from
sales. In that revenue ruling, the Commissioner holds that
Medicaid rebates incurred by a pharmaceutical manufacturer are
purchase price adjustments that are subtracted from gross
receipts in determining gross income. The Commissioner states:
In Pittsburgh Milk Co. v. Commissioner, 26 T.C. 707
(1956), * * * the Tax Court addressed whether
allowances, discounts, or rebates paid by a milk
producer to certain purchasers of its milk, in willful
violation of state law, are adjustments to the purchase
price of the milk resulting in a reduced sales price,
or ordinary and necessary business expenses under § 162
(in which case no deduction would be allowed under the
rules of § 162(c)). The court reasoned that for income
derived from the sale of property, in determining gain,
the amount realized must be based on the actual price
or consideration for which the property was sold and
not on some greater price for which it possibly should
have been, but was not, sold. The court focused on the
facts and circumstances of the transaction, what the
parties intended, and the purpose or consideration for
which the allowance was made. The court found that the
allowances were part of the sales transaction and
concluded that gross income must be computed with
respect to the agreed net prices for which the milk was
actually sold. Thus, under Pittsburgh Milk, where a
payment is made from a seller to a purchaser, and the
purpose and intent of the parties is to reach an agreed
upon net selling price, the payment is properly viewed
as an adjustment to the purchase price that reduces
gross sales. [Id., 2005-1 C.B. at 997; emphasis
added.]
Page: Previous 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Next
Last modified: November 10, 2007