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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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