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mileage, not parts and labor. In short, the contract price is
consideration for the present sale of a warranty, not a deposit
to be held pending future agreements to provide repairs.
There is a straightforward explanation for the refundability
of the contract holder's payment that does not require us to
obliterate the well-settled distinction between deposits and
sales income and to extend the holding of Indianapolis Power &
Light beyond all recognition: the price of the VSC is subject to
pro rata refund upon cancellation because it is similar to a
premium paid under a standard insurance policy. Since the VSC
serves the function of insuring the vehicle purchaser against
loss, it is not surprising that it is sold on terms similar to
other types of insurance.7
c. Petitioners' Trust Fund Theory
According to the second theory advanced by petitioners, a
Dealership did not realize income from the sale of a VSC to the
7 This Court has previously noted the similarity between an
extended service contract for consumer durables and a contract of
insurance. See Standard Television Tube Corp. v. Commissioner,
64 T.C. 238, 243 (1975). To say that the VSC resembles insurance
from the contract holder's perspective is not to say that it
constitutes insurance from the Dealership's perspective.
According to a view espoused by the Commissioner, the Dealership
bears an insurance risk only to the extent that it agrees to
indemnify the contract holder for repairs performed by other
facilities; to the extent that it may perform covered repairs
itself, the risk it bears is more properly regarded as a business
risk. On this distinction, see Rev. Rul. 68-27, 1968-1 C.B. 315;
see also Jordan v. Group Health Association, 107 F.2d 239, 248
(D.C. Cir. 1939).
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