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These cases were submitted fully stipulated pursuant to Rule
122. Our findings of fact are based upon the parties’
stipulation and the attached exhibits, which are incorporated by
this reference. The parties have stipulated that any appeal in
this matter lies to the U.S. Court of Appeals for the Ninth
Circuit.
Background
During the years in issue, petitioners were engaged in
business as retail automobile dealers, in connection with which
they sold extended warranty agreements (EWA’s) to certain retail
purchasers of new and used motor vehicles. Under such EWA’s,
petitioners agreed, in exchange for a single lump-sum fee, to
replace or repair, or to reimburse for the repair of, various
components of a vehicle that failed during an extended multiyear
period.4 After a customer agreed to purchase a vehicle, the
customer was informed of the option to purchase an EWA. The
customer was free to accept or decline and could elect coverages
that varied with respect to years, mileage, or items covered.
The fee or price paid to petitioners by their customers for an
EWA depended upon the coverages selected.
An EWA expressly provides that it is a “SERVICE CONTRACT
4 The coverage period could be denominated 5, 6, or 7 years
or be further restricted by a stated mileage limit, in which case
the coverage would terminate upon the first of either to elapse.
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Last modified: May 25, 2011