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collection from the purchaser or deposited in the PLRF pending
ultimate disposition. They could be released from the PLRF as a
cancellation refund, payment for covered repairs, or a
distribution of unconsumed reserves. Thus, the following six
cases cover all possibilities for the ultimate disposition of the
unreported amounts:
(1) Payment for Premium, Commissions, or Fees;
(2) refund upon cancellation of the contract;
(3) release to another repair facility to pay for covered
repairs;
(4) release to the Administrator upon expiration of the
contract or termination of the Dealership’s participation in the
program;
(5) release to the Dealership to pay for covered repairs; or
(6) release to the Dealership upon expiration of the
contract or termination of the Dealership's participation in the
program.
The Dealership's practice was to report income only when and
to the extent that reserves were released to the Dealership under
cases (5) and (6). Amounts disposed of under each of the other
cases were never recovered by the Dealership and hence would
never have been reported as income. The proper application of
the accrual method is to include the full contract price in
income for the year the VSC was sold and, to the extent that the
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