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mention the PLRF in their sales presentations to prospective VSC
purchasers. The protection that the Dealerships did emphasize
was the major insurance company that was underwriting the
program, symbolized by the red Travelers umbrella that the
manager of one of the Dealerships testified that he kept on hand
for this purpose.
We conclude that VSC purchasers held no beneficial interest
in the PLRF. Recognition of the PLRF as a trust for Federal
income tax purposes provides no basis for the exclusion of
reserve deposits from the Dealerships’ gross income.
2. Investment Income of the PLRF
Investment income earned by the PLRF apparently was not
reported on any tax return for taxable years prior to 1992. For
1992 and subsequent years, the Escrow Trustees filed Forms 1041
for each escrow account, ostensibly reporting this income in a
manner consistent with the treatment of the accounts as complex
trusts. Petitioners advance alternative arguments defending both
treatments:
Code �468B(g), which was enacted in 1986, directed
Respondent to issue regulations which would specify how
investment income such as that credited to the Escrow
Accounts should be taxed. * * * The regulations which
were finally issued do not address situations such as
the one presented here. [Fn. ref. omitted.]
In the absence of regulatory guidance, the Court
should apply the law as it existed before enactment of
Code �468B(g). The principles developed by the courts
would defer taxation of any earnings credited to the
Escrow Accounts until their owner is identified.
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