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with respect to each of the PLRF accounts. These returns treat
the investment income as if the PLRF accounts were complex
trusts. The Escrow Trustees were of the opinion that this
treatment was required by final regulations under section 468B
issued in December 1992.
Respondent determined that the Dealerships' method of
accounting for the VSC’s did not clearly reflect income because
it resulted in omission of items of income and premature
deduction of some items of expense. Respondent computed
adjustments to their income for each of the years at issue in a
manner designed to result in inclusion of the full purchase price
of contracts sold during the year and deferral of deductions for
related expenses until later years. Respondent further required
the Dealerships to include in income their respective shares of
the investment income of the PLRF accounts as it accrued.
Finally, respondent included in the income of certain Dealerships
an additional amount pursuant to section 481. Only the section
481 adjustment asserted against DFM Investment Co. is at issue in
these proceedings.
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