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Held:
1.(a) At the time Ds sold a VSC they acquired a
fixed right to receive, and must currently include in
gross income, the portion of the contract price
deposited in escrow. The reasoning of Commissioner v.
Hansen, 360 U.S. 446 (1959), controls.
(b) This amount did not constitute a purchaser
deposit. Commissioner v. Indianapolis Power & Light
Co., 493 U.S. 203 (1990), distinguished.
(c) Nor did this amount constitute a trust fund
for the benefit of the purchaser. Angelus Funeral Home
v. Commissioner, 47 T.C. 391 (1967), affd. on other
grounds 407 F.2d 210 (9th Cir. 1969), and Miele v.
Commissioner, 72 T.C. 284 (1979), distinguished.
2. Pursuant to secs. 671 and 677, I.R.C., Ds are
treated as owners of the escrow accounts and must
currently include investment income of the accounts in
gross income. Effect of sec. 468B(g), I.R.C.,
explained.
3. Premiums are capital expenditures that must be
recovered through amortization. Fees are deductible in
accordance with a formula that reasonably measures A’s
performance of services over the life of the VSC’s. Ds
may not either currently deduct these payments to
offset income they are required to recognize with
respect to the corresponding portions of the contract
price or defer recognition of income until the
offsetting deductions are allowable.
4. An adjustment under sec. 481, I.R.C., is
sustained.
Kenneth G. Kolmin, Francis J. Emmons, and Aaron E. Hoffman,
for petitioners.
Karen J. Goheen and Elsie Hall, for respondent.
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Last modified: May 25, 2011