Rameau A. and Phyllis A. Johnson - Page 16

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            Dealerships distributed to their customers emphasized that                                
            "Insurance for this plan is provided by one of the six largest                            
            property and casualty insurance companies in the United States",                          
            and the manager of Alton Toyota/Dodge during the years at issue                           
            kept a red Travelers umbrella in his office to use as part of his                         
            sales presentation.  On the other hand, neither the manager of                            
            Alton Toyota/Dodge nor the salesmen of the Dealerships generally                          
            called attention to the PLRF arrangement in their presentations                           
            to customers and did not show them the Administrator Agreement                            
            that governed the PLRF arrangement.  No contract holder has ever                          
            requested API to furnish information regarding the status of a                            
            PLRF account.                                                                             
                  All of the Dealerships maintained their books and records                           
            under the accrual method of accounting.  On their Federal income                          
            tax returns for each of the years at issue, the Dealerships                               
            reported as income from the sale of VSC's only that portion of                            
            the contract price that they retained as profit.  The PLRF                                
            accounts were not reflected on the Dealerships' returns for these                         
            years, and the income earned by investment of these reserves was                          
            not currently included in their gross income.  The Dealerships                            
            included reserves in income only when, and to the extent, paid to                         
            them from the PLRF accounts.                                                              
                  For calendar year 1992 and subsequent years, the Escrow                             
            Trustees have filed Forms 1041, U.S. Fiduciary Income Tax Return,                         





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