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On a related question, I'm intrigued as to how this kind of market is different from Apple's App Store[1]. I know Google expenses its AdSense partner cost as traffic acquisition cost[2], but what about them makes the IRS/SEC view them differently?

[1] http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples... [2] http://news.ycombinator.com/item?id=1792921

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In tax, its all the same generally speaking. The only difference is where these costs enter the equation. Apple is similar to the situation above where they are accepting money and transferring a large portion of it back to the developer as a cost of sales.

In the ad business above, the transfer of 70% income is a cost of sales that leads to gross profit.

I havent looked over google's financials, but i would expect that the traffic acquisition cost is an expense and not a cost of sales. Expenses enter the calculation after gross profit.

Sales - Cost of Sales = Gross Profit - Expenses = Net Income

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