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Association, 403 U.S. 345 (1971). Lump-sum payments for
multiyear insurance coverage generally are capital expenditures
that may be recovered only through amortization over the period
of coverage. Commissioner v. Boylston Market Association, 131
F.2d 966 (1st Cir. 1942), affg. a Memorandum Opinion of the Board
of Tax Appeals; Higginbotham-Bailey-Logan Co. v. Commissioner, 8
B.T.A. 566, 577 (1927); secs. 1.461-4(g)(8), Example (6),
1.167(a)-3, Income Tax Regs.
The VSC's required the Dealerships to obtain excess loss
insurance coverage for periods of 1 to 7 years. The Dealerships
incurred the liability for this insurance in the year the Premium
was paid. However, to the extent that part of any Premium was
allocable to coverage for subsequent years, it must be
capitalized and amortized by deductions in those years.
The Administrator's Fees are subject to different treatment.
The VSC required the Dealerships to establish the PLRF to fund
their repair obligations. Economic performance with respect to
this liability occurred as the Dealerships incurred costs in
connection with the establishment and administration of the PLRF.
Sec. 1.461-4(d)(4), Income Tax Regs. The Dealerships incurred
these costs as the Administrator actually rendered services to
them. Sec. 1.461-4(d)(2), Income Tax Regs.; see sec. 1.461-
4(d)(7), Example (1) (performance of reclamation services through
independent contractor), Example (2) (performance of services
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