Rameau A. and Phyllis A. Johnson - Page 5

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            the contract price that they remitted to third parties as                                 
            prepayments of service fees for administration of the VSC program                         
            and an insurance premium for indemnification of their losses                              
            under the program.  If respondent prevails on these issues, we                            
            must further decide whether the income of one of the dealerships                          
            is subject to an additional adjustment pursuant to section 481.                           
                  We hold that the dealerships' method of accounting for VSC's                        
            was not a proper application of the accrual method, and, except                           
            in regard to the treatment of the dealerships’ administrative fee                         
            expenses, we sustain respondent's revised adjustments in full.                            
                                         FINDINGS OF FACT                                             
                  Some of the facts have been stipulated and are so found.                            
            The stipulations of fact and attached exhibits are incorporated                           
            by this reference.  At the times they filed their petitions, the                          
            Johnsons, the Herrings, and the Mungenasts were residents of, and                         
            DFM Investment Co. maintained its principal place of business in,                         
            the State of Missouri.  The relationships between petitioners and                         
            the dealerships whose method of accounting for VSC's is the                               
            subject of controversy in these cases (collectively, the                                  
            Dealerships) are set forth below:                                                         
         Corporate              Doing           Tax Status During          Petitioners                
         Name               Business As      Taxable Yr.(s) At Issue     Owning Shares                
       DFM Investment Co.   St. Louis Honda       Subchapter C corp.      David Mungenast             
       (at least 82%)                                                                                 
       DRK Investment Co.   St. Louis Acura       Subchapter S corp.      David Mungenast             
       (100%)                                                                                         
       Capco Sales, Inc.    St. Louis Lexus       Subchapter S corp.      David Mungenast             
       (100%)                                                                                         




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