- 9 -
See Rev. Proc. 92-98, secs. 9, 4.04, 1992-2 C.B. at 517, 513.
With respect to accounting for insurance costs, Rev. Proc. 92-97,
supra, provides that lump-sum amounts, paid in advance for
multiyear insurance policies to insure a consumer durable goods
seller’s obligations to customers under multiyear warranty
contracts sold to them, must be capitalized and prorated or
amortized over the life of the insurance policy. See Rev. Proc.
92-97, sec. 2.07, 1992-2 C.B. at 511.
During the years at issue, in accordance with Rev. Proc. 92-
98, supra, petitioners reported as income in the year of receipt
the difference between the total amount received from the sale of
EWA’s and the total amount paid to Western General. The
remaining proceeds from the sale of EWA’s--i.e., the amounts paid
to Western General to insure petitioners’ risks under the EWA’s,
or qualified advance payment amounts--were, as increased by an
interest-equivalent factor, included in income ratably over the
terms of the EWA’s. Pursuant to Rev. Proc. 92-98, supra, for
purposes of computing the income required to be included each
year in connection with the qualified advance payment amount,
petitioners treated the proceeds from the sale of EWA’s as having
been received on the first day of the taxable year in which an
EWA was sold.
Petitioners took deductions for the amounts paid to Western
General for assumption of the EWA liabilities by capitalizing
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