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

Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com
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 http://www.washingtontaxlaw.com/, 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.