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services were provided. In upholding the taxpayer's exclusion
of the payments from gross income for the year of receipt, we
reasoned that the preneed funeral contract "created a custodial
or trust arrangement" for the benefit of the customer, that the
taxpayer received the payments as a custodian or trustee, and
that, accordingly, it did not realize income from sale of the
preneed contracts.
The issue in Miele was how a law firm should account for
prepaid legal fees. The taxpayer, a cash basis law firm, was
required under the State professional responsibility code to
preserve the identity of advances received from clients by
segregation of the funds in a client trust account and by
separate accounting for each client. When a case was closed, the
firm transferred the earned portion of the client's advances to
its own general account and refunded the unearned portion to the
client. It reported the advances as income only when transferred
to its general account. In consideration of the legal
restrictions on the law firm's use of the advances, we held that
the advances were properly treated as belonging to the client
until transferred to the firm's general account, and hence the
law firm was "not in receipt of income when the payments were
actually received." Miele v. Commissioner, supra at 290.
Respondent would distinguish Angelus Funeral Home and Miele
on the ground that they concerned whether the taxpayer actually
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