ABC Rentals of San Antonio, Inc., et al - Page 6

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          period ending December 31, 1987.  Guaranteed and ABC timely filed           
          their Federal corporate income tax returns for S corporations for           
          the calendar year 1988.                                                     
               Guaranteed and ABC operated commercial enterprises which               
          rented consumer durables (appliances, furniture, televisions,               
          stereos, and video cassette recorders) under rent-to-own leases             
          to individuals.  Both Entities have been in the rent-to-own                 
          business for a number of years.  During the tax periods in                  
          controversy, Guaranteed and ABC estimated that the total gross              
          rental anticipated to be received on each rental unit (except for           
          initial rental contracts on rental unit purchases as transfers              
          between companies as discussed below) would be 300 percent of its           
          initial cost.  This method of determining the total gross rental            
          anticipated to be received was consistent with the practice in              
          the rent-to-own industry.  In determining the weekly or monthly             
          rental rate, as the case may be, for each rental unit, the                  
          Entities divided such expected total gross rental by the total              
          number of weeks or months, as the case may be, under the initial            
          rental contract for such rental units.                                      
               Whenever a rental unit either was picked up by an Entity or            
          returned to that Entity prior to all payments being made under              
          the initial rental contract, due either to a failure of the                 
          customer to timely pay periodic rent or the exercise by the                 







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