- 2 -
corresponding adjustment under section 481.1 At issue is whether
the year of change, the first year the new accounting method is
applied, is the first open year, 1990, or the year in which the
IRS initiated the audit, 1993. This case was submitted on the
basis of a stipulation of facts.
Petitioner is a California corporation with its principal
office in Burbank, California. Petitioner operates under a
license granted by the California State Department of Insurance.
It sold its first contract on January 12, 1988.
Petitioner sells home warranty contracts to buyers and
sellers of previously owned residential property. Under the
terms of the basic home warranty contract, petitioner agrees to
repair or replace appliances and covered systems (such as heating
systems) that become inoperative during the term of the contract.
Customers can buy additional coverage for other appliances and
systems not covered by the basic coverage for additional
consideration.
The home warranty contracts commence with the close of
escrow and are in effect for 1 year, except for mobile home
contracts which are in effect for 6 months. A homeowner can
renew the contract upon its expiration, but only if petitioner
agrees. Approximately 10 percent of the contracts are renewed.
1 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011