Rameau A. and Phyllis A. Johnson - Page 69

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            failed to make the requisite showing, and accordingly may not                             
            deduct the Fees until expiration of the VSC’s to which they                               
            relate.                                                                                   
                  We accept respondent’s interpretation of the economic                               
            performance rule and adopt it as the evidentiary standard for                             
            these cases.  However, we do not agree with respondent’s                                  
            application of this standard.                                                             
                  One index for measuring the Administrator’s performance may                         
            be found in the provisions of the operative agreements that                               
            govern how the Fees are earned for refund purposes.  Under the                            
            refund formula, the Fees attributable to a contract are earned in                         
            proportion to the greater of time elapsed or mileage driven under                         
            the contract.  This formula reflects two important aspects of the                         
            Administrator’s performance.  First, the Administrator was                                
            obligated to incur substantial costs simply in making certain                             
            resources available at all times for processing claims and                                
            cancellations, whether or not a claim or cancellation notice was                          
            actually filed.  Second, the Administrator provided recordkeeping                         
            and reporting services regularly throughout the term of the VSC.                          
                  We think that the refund formula represents “a reasonable                           
            manner in which to estimate the amount and timing of the                                  
            [Administrator’s] services” for purposes of section 461(h), and                           
            neither party has established the validity of any other                                   
            estimation approach.  The formula implies that, for any taxable                           





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