amount which will be required to redeem those stamps issued during theperiod that will eventually be presented for redemption.Although the regulation by its express terms is applicable to taxpayers whichissue their own trading stamps, is there any grounds upon which to hold that therule is not equally applicable to the taxpayer whose operations consist solelyof providing stamps and redeeming them for merchandise for other merchants whodistribute them with sales? There does not appear to be any fundamentaldifference in the two situations that would support different treatment. Inboth cases, as far as the issuing company is concerned, the stamps are sold inone period and redeemed in a subsequent period, and the process of determiningincome should be the same.In the case of a trading stamp company, the business from which its netincome is derived is a bifurcated operation; the sale of trading stamps to themerchants who distribute them and the subsequent redemption of the stamps inexchange for merchandise. There is little question but that income from thesale of stamps is includible in the period in which the stamps are sold. Thesale of the stamps to the merchant is a closed transaction between those partiesso that income is realized at that time. However, it does not followthat the entire receipts constitute gross income. The basis of the regulationpertaining to the issuance of trading stamps would seem to be that the totalamounts received upon the sale of stamps do not constitute gross income but are,rather, gross receipts from which the cost of goods sold must be subtracted todetermine gross income. (See, Reiling, Tax Accounting for Repricing and OtherReserves, 31 Taxes 990, 991.) Of course, the rule is well settled that amountsreceived as a return of capital or investment are not income (Doyle v. MitchellBros. Co., 247 U.S. 179), and this includes inventory. If determining incomefrom the sale of trading stamps does not require recognition of the factor thatan allowance must be made for the cost of goods to be exchange[d] in redemption,then the regulation provides an inexplicable departure from the well settledrule prohibiting the deduction from current income of a reserve for estimatedfuture expenses. (Mertens, Sec. 12.22 et seq.)In summary, it is concluded that gross receipts from the sale of stamps areincludible by the company in the period in which the stamps are sold, onthe basis either that the sale is a completed transaction in the period or thatincome is includible under the claim of right doctrine. And it is furtherconcluded that there should be subtracted from gross receipts the amountrequired for the redemption of stamps sold during the period, for the reasonthat the instant situation is not fundamentally different from that covered bythe regulation, and that in either case the gross receipts from the sale ofstamps constitute in part the recovery of the cost of goods which must beallowed in computing gross income. Although it decided against the taxpayerbecause the regulation was not complied with, the court stated in U. S. v.Morrison Stores, supra, 80, that ". . . it seems apparent that some deductionshould be made for the amount necessary to redeem the purchase slips . . ." In
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