Vitamin Village, Inc. - Page 9

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          products petitioner sold in UMI’s FYE May 31, 1996.  Pursuant to            
          a similar agreement petitioner paid $1,105,276 (in petitioner’s             
          FYE June 30, 1996) for the same services in UMI’s FYE May 31,               
               As a result of UMI’s services, within UMI’s first fiscal               
          year (FYE May 31, 1996), petitioner’s gross receipts exceeded $1            
          million with $800,000 in gross profits from the sale of the                 
          products UMI branded, marketed, and advertised.8  Furthermore, in           
          petitioner’s 1997 fiscal year, UMI’s services caused petitioner’s           
          gross receipts to double, exceeding $2 million and earning over             
          $1 million in gross profits.  Petitioner deducted the amounts               
          paid to UMI as advertising expenses in the fiscal years at issue.           
          F.   Mr. Reeves’s Home and the Floating Structures                          
               On September 24, 1993, Mr. Reeves purchased 1.2 acres along            
          the Willamette River in Newberg, Oregon, which included Mr.                 
          Reeves’s family residence and a dilapidated houseboat and a                 
          floating dock on the river behind and down a hill from the                  
          residence.  The residence was a two-story house with                        
          approximately 2,200 square feet per floor.  The first floor was a           
          daylight basement used by the previous owner to store                       
          automobiles.  The houseboat and the dock were connected to Mr.              

               8  The record does not indicate CTC’s earnings or the amount           
          of time Mr. Reeves spent conducting its activities.  The record             
          indicates Mr. Reeves sold CTC in 1997.                                      

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Last modified: November 10, 2007