walk into a car dealer and i asked to look at a quark and the dealer tells me the cars list the ten dollars i say i'm not ready to buy and that part of the says i've got a deal for you i'll give you two dollars right now if you come back on friday and buy the car for ten dollars if you don't buy the car for ten dollars on friday you've got to give me the two dollars back that's what we're talking about here there will be no dispute that is in fact on wednesday to day i bought the car for the discounted price of eight dollars we have no income however the government here in the court below determined by virtue of the receipt of those two dollars for a period of time there was  million and control over that amount counsel yes i found this case really fun to read actually and that i agree with you that that was not a persuasive argument by the commissioner we don't  before hand i have no idea what my colleagues think and it seemed to me that if your cash basis taxpayer dominion and control is the end of the story it's income if you're an accrual basis taxpayer it just doesn't much matter  i believe that the authority in support of westpac position is pretty clear from the supreme court in both lunch hour glass and i q l but i have to draw inferences i think clearly you have to draw inferences in the sense of whether or not there was dominion and control though it's not like the grocery  purchasing cooperative or whatever you want to call it is looking at a circuit court or a supreme court case and just shaping its transaction to fit it correctly the issue here is whether it was income not when it became seller of services that's the seller right that's correct and that's what distinguishes this case we are the buyer and in essence what the government is arguing in the court below found is that a buyer of our goods has income when in fact between it there their cost is nine dollars they sell it for eleven dollars they need two dollars of income but the discount would not be income there because they got the discount up front now in this case you circumstances what happens in the keys here and where the court went wrong below and it's unfortunate use of of the words is in order to keep the money which is the key here they had to give it back that's the underlying issue here which is why not in the example i gave when i get that two dollars back from from the dealer in order for me to get the benefit of that two dollars in the discount i have to give it back so under all circumstances the example i gave and in the westpac case they always had to give the money back in other words if they wanted to get the discount regardless of what they got they had to give it back you had to give it back one of two ways it's either you don't have a volume purchased and you give all of the money back or you have a volume purchase but when you have that volume purchased you actually have to take the money that westpac gave you in essence and give it back now to the governor i thought what you would do is well i remember my schedule c when i used to fill one out i put revenue at the top and then i have to adjustments well there can be many adjustments to the cost of goods sold discounts that i gave refunds that i gave no i guess that wouldn't apply that wouldn't really fifth this i'm just thinking that what you would do is reflect the fact that dollar that you got up front as an adjustment to  is and you've got to look beyond the transaction and what happened in that situation was that in essence what happened was i wrote a check back for that deposit and then the customer wrote a check back to pay that actually that didn't happen but this report said you really have to sort of look at the essence and understand the transaction that's exactly what happened here while you know that exact two dollars i'm talking about may not have gone back in essence in a check to  vendor the reality is when they purchased a product what they did is they in essence wrote a check back for the amount of the advance in that amount and then their dollars so the key here is they always had to use their dollars and couple it with the advance to get the discounts and i'm right in thinking that i suppose the i r s were to win this case then your cost of goods sold would be higher because so suppose you're buying one hundred dollars worth of light bulbs and you get a ten percent discount and you get it up front and can't so you get ten dollars under your theory  received but the cost of goods sold does not get adjusted for one hundred dollars to ninety dollars that stays at one hundred correct also your profits from those like bulbs that you sell is ten dollars less and  is whether you pay tax on the discount transmuter into cash up front when you get the cash or when yourself a litle with respect if things are indeed a loan sort of deposits first you said whether their loans were deposits and then used to argument is whether they were kim to what they meant by that argument was if we don't sell enough light bulbs to meet the volume requirement of the discount deal the discount  buy a whole lot of light bulbs you get ten percent off or really you sell a lot of light bulbs that you buy from us you get ten percent off and they say great we'll take the temperature in our front kiddush if they don't sell the volume requirement of light bulbs there is some genuine question about the nature of the transaction now there that give you the cash incentive and then the question is is it income when received and as far as i can tell if they were a cash basis taxpayer no question about it there on limited dominion and control would make  income one receipt but they are cruel based system with a cruel basis you often have expenditures where there is no care for the expenditure and you often have cherish money that comes in but it's not income and it's just putting it in the category just in helping me get to the answer why should why should we treated this income despite the fact that the tax court said it was a chord with except it accounting practices not to treat it as income for purposes of reporting to shareholders well if i could if i could answer if i could respond before answering your question if i could respond then it would not be and so i'm saying but now you're saying no that's not you know i'm sorry i don't want to be a moving target you know that know that at some point it's not in town and i'm trying to understand what you know what because you're saying the record below does not support what he's saying here act and and i understood that to contracts did not contain such an expressed her vision it existed implicitly pursuant to industry custom upon terminations westpac issued a four hundred six thousand dollars check american greetings for its repayment west that's just workplace unconditional if they don't meet the volume requirements but it's contingent in the sense that if they meet the buyout volume requirements they don't have to pay back the cash upfront and we certainly george callahan i think you said at one point but i'm not sure i got it right and i want to make sure that if it were as simple as we show you the light bulbs for a dollar in that case an accrual basis taxpayer would not have to recognize income when they got one hundred thousand dollars up front and that the only reason recognition is required here in the commissioner's point of view is that it's a whole lot more complicated than that whether and when and how much money they have to pay back if i got this ri westpac will reimburse g t e sylvania on a per rated basis for any portion of the westpac allowance advanced to westpac but not earned due to your by westpac to purchase at least seventeen million dollars in lamps why isn't that exactly what you're asking for i just i don't i'm sorry i don't entirely understand what looks to me as though that's exactly the deal that we discussed this the hypothetical deal where you start if they did that that would be ok they wouldn't have chance like calculating the twenty percent when you pay the waiter i can i can tell you that i'm going to give the waiter a twenty percent even though i don't know what the meal is going to cost but we don't but we do need to well if they did this test and then sam we knew that they had it was certain that they you know that they had to repay it if they didn't tell then that would satisfy the government but now i'm seeing the target move to well now  pathetic a situation that would ever satisfy you as to the certainty i mean can they ever do what you know because i understood when you first got up to say if that's what they were really doing if that's what the records showed it's a complete that's a completely different case that's not the case we have here and that wouldn't be and but then it was well know now if we did have that case it still would be an income so i don't i mean could they ever do what they say they're doing and it would not be income i mean need to know that respecting the volume purchase if you didn't purchase you had to give the money back in exact language below is creating the confusion here and the reason is this you don't earn income vike purchasing yet people use the terms in the contract like they could earn the advance or the discount the reality is whether we use the word contingent or non contingent there was no question in this situation when you look at the fact that under every single circumstance the money had to be given back it just was either given back when you didn't make a volume purchase on the one hand you know completely give it back i didn't i didn't my pov all you purchased money it would be a different circumstance but you're always going to have a cost and so all this is doing and it's basically a give back in the price because something you list price and i would never pay list price so i would always get a volume discount and that's why we come around that they could ever keep this money they always had an obligation to return the money either on the one hand through no no purchase or the other hand taking that two dollars that i talked about from the car dealer and taking my eight dollars and putting it together and giving it to the cardio on friday on all about is the use of that money for the two days that two dollars and whether or not the use of that money is income and this case is not the tax court decision below turns general tax principles on its head a buyer cannot have income through the all the same i p l answers your exact point i p l stuff that absolutely for example i feel and that's to had the benefit of the customers deposit for a period of time it got to use it enjoy it invest it do whatever it wanted to whether there's some guarantee that they could keep it and that's what the i p l case was all about was looking about looking at what was their ability to control keeping that money and an i p l the court said they didn't really have the ability to control the customer to cancel the contract etc same gear we have no ability to keep that money we can't just walk away and keep it we have an obligation to repay it because we either have to give it back to him when we don't purchase or when we purchased give them back their money and our money together and a with whether it's benefits just whether it's in common you're saying because corn accrual basis taxpayer you take the good with the bad and this is the good absolutely saying there's an economic benefit and agree with the court we're simply saying the supreme court said an economic benefit by itself is not income  i slightly disagree with your honor which is if i were a cash basis taxpayer and i gave my example i'm in the exact same situation i just i see so the implication of the government's argument is that when ford and general motors have these incentive sales programs ab buy the car for twenty eight thousand dollars get two thousand dollars cash now and make no payments for six months the i r s position would then the buyer all those people that went for the deal have to pay income tax on the two thousand dollars that's exactly why you're going to have your own against no it's just that they're paying two thousand dollars more for the car it's not income that's just part of the discount package but it's actually not that they're paying two thousand dollars more it's getting a discount in fact in advance discount if they get the two thousand up front that then they pay two thousand dollars more for the car have and that's exactly what we have here which is we have a list price if you will and we're buying for less than was priced giving us that discount and we're giving it like back to them so that we're always buying at that discount so in other by get this right i want the s position would imply on those automobile incentive programs again i haven't asked counsel but by virtue of their position below it would have to apply by extension and that's why this decision is incorrect and  s we're going to disrupt our normal procedure because that we have some curiosity about that and you're entitled to the last word because you lost the case below but we're going to ask i i  them here's the deal one when the big car manufacturers are trying to move some cars they have too much human story on our lot a lot of times here on the radio the ends and the answer are coming in by the car today you pay no money today we'll give you a check for two thousand dollars you don't owe any payments for six months people come in and buy the car they get the check for two thousand dollars they put it in their personal checking accounts of their full dominion and control over the money at six months from now the payments start up on their cars since the car manufacturer was willing to sell the car on mr deal if the buyers head ass said no we don't want cash up front we want cheaper cars it's reasonable economic inference that the cars were to sold for two thousand dollars less but if i understand the i r s position when we hear that deal over the radio i r s entitle to charge all the buyers of cars who got those two thousand dollars checks income tax on the two thousand dollars checks is that true if there is no further question