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amounts of $593,967, $13,064,705 and $36,102,409, respectively.
In relevant part, respondent determined that petitioner could not
accrue a deduction of its estimated lifetime warranty expenses,
or a part thereof, for vehicles that were sold during the
corresponding year.
We must decide whether for Federal income tax purposes all
events necessary to determine petitioner’s liability for its
warranty expenses have occurred when it sells its vehicles to its
dealers; in other words, has petitioner satisfied the first prong
of the all events test entitling it to deduct its estimated
future warranty costs on the sale of such vehicles? We hold that
it has not.
The following statement of the background of this case is
based on the parties’ joint statement of undisputed and disputed
facts, stipulation of facts--warranty issue, and attached
exhibits.
Background
Petitioner’s principal place of business was located in
Auburn Hills, Michigan, when the petition was filed. Petitioner
keeps its books and computes its income for financial purposes
and for Federal income tax purposes using the accrual method of
accounting. It uses a calendar year as its taxable year.
Petitioner manufactures and sells automobiles and trucks
(vehicles). Petitioner generally sells the manufactured vehicles
to dealers, who resell the vehicles to retail customers. A sale
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