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such amounts and amortizing them in a manner which departed in
one respect from the method prescribed in Rev. Proc. 92-97,
supra. Whereas Rev. Proc. 92-97, supra, provides that a seller’s
payment for a multiyear insurance policy covering the seller’s
obligations under a service warranty contract must be amortized
over the actual life of the policy, petitioners computed their
amortization deductions using an accounting convention under
which the premium payment and policy inception were deemed to
have occurred on the first day of the taxable year in which the
policy was obtained, irrespective of the actual date of payment
and policy inception. This methodology, which resembled the
convention prescribed in Rev. Proc. 92-98, supra, for the
recognition of income from the qualified advance payment amount,
resulted in petitioners’ taking amortization deductions in the
first taxable year of a policy’s inception equal to a full year’s
worth of amortization, without regard to the actual date of
payment and policy inception. In effect, this increase in the
first year’s amortization deduction caused it, as well as each
ensuing year’s deduction, to match the ratable portion of the
deferred EWA income required to be included pursuant to the terms
of Rev. Proc. 92-98, supra. As a result, the “net” income
recognized by petitioners consisted only of the excess of the
aggregate EWA prices charged to petitioners’ customers over the
aggregate premiums paid by petitioners to Western General in the
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Last modified: May 25, 2011