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Washington Tax Alert July 2, 2007 (Service agrees to follow Westpac).doc

Washington Tax Alert from Don Barnes,
July 2, 2007

The Service issued a revenue procedure this afternoon ( see Rev. Proc. 2007-53) reversing its long-standing position that a lump-sum trade discount paid to a taxpayer in exchange for an agreement to purchase a specified amount of merchandise is gross income when received.

For additional background relating to this issue, please see, Washington Tax Alerts dated October 6, 2006 and June 23, 2006.

The Service will now follow the appellate court decision in Westpac Pacific Foods v. Commissioner , 451 F.3d 970 (9 th Cir. 2006), if the term of the contract does not exceed five years.