- 4 -
recognized. (Except for 1988, when it deducted 20 percent of the
entire amount of contracts written in 1988.) It described this
deduction as "provisions for reserves." Thus, continuing the
example used above, when it recognized $110 in year 1, petitioner
would take a deduction of $22 in year 1 ($110 x .2) and called
this deduction a "provision for reserve." In year 2, petitioner
would recognize as income the "provision for reserve" deduction
from the prior year. Thus, in year 1, petitioner effectively
reported $88 ($110 - $22). In year 2, petitioner reported $152
($130 + $22).
Respondent commenced an examination of petitioner's 1990 and
1991 returns in March 1993. (Later during the examination 1992
was included.) Prior to the commencement of the examination,
petitioner made no application to respondent with respect to
changing its method of accounting for its income and deductions.
During respondent's examination of petitioner, the issue arose as
to whether the home warranty contracts constitute insurance
contracts for purposes of section 832. To resolve that issue,
the parties participated in obtaining technical advice from
respondent's national office. This process of obtaining
technical advice was initiated by respondent's revenue agent by
means of a memorandum (Form 4463, Request for Technical Advice
From Associate Chief Counsels (Technical) and (International))
dated June 17, 1993. Petitioner participated in the technical
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