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The parties agree that the full purchase price of the VSC was due
and collected at the time of sale.4
The VSC purchaser can select the term of coverage he desires
from a range of options, each defined by reference to a specified
time or mileage limitation, whichever is reached first.
Approximately three-quarters of the contracts sold by the
Dealerships during the years at issue provided coverage for at
least 5 years or 60,000 miles. However, the aggregate limit of a
dealer's liability is fixed in some of the contracts as the value
of the vehicle at the time of purchase and in the rest of the
contracts as the lesser of the value of the vehicle at the time
of purchase or $10,000.
The VSC provides that
A specific amount of the Contract purchase price shall
be held in escrow in accordance with and as specified
in Automotive Professionals, Inc.'s Administrator
Agreement, a copy of which is available from the
Dealer. Said amount shall be paid directly to the
escrow account established by the Administrator and
4 Purchasers had the option to finance the contract by
adding the purchase price to the installments payable for the
vehicle. Although the details of the financing arrangements are
not disclosed by the record, presumably the Dealership would
immediately assign the purchaser's installment obligation to a
finance company for cash, in accordance with the conventional
practice for financed sales of motor vehicles. See Commissioner
v. Hansen, 360 U.S. 446 (1959); Resale Mobile Homes, Inc. v.
Commissioner, 91 T.C. 1085 (1988), affd. 965 F.2d 818 (10th Cir.
1992). Neither party suggests that the tax treatment of VSC's
should be affected by the use of financing. The parties'
stipulations and arguments on brief assume that the full contract
price was due and paid in cash at the time of the sale. For
convenience of analysis, we do so also.
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