- 20 -
of a prepayment for a multiyear warranty agreement.11 Absent
Rev. Proc. 92-98, supra, the Commissioner generally would have
discretion under section 446(b) to deny taxpayers the right to
defer prepaid services income until the periods when related
costs will be incurred and taken into account. See Schlude v.
Commissioner, 372 U.S. 128 (1963); American Auto. Association v.
United States, 367 U.S. 687 (1961); Automobile Club of Michigan
v. Commissioner, 353 U.S. 180 (1957); RCA Corp. v. United States,
664 F.2d 881, 885-888 (2d Cir. 1981); Johnson v. Commissioner,
108 T.C. 448, 491-492 (1997), affd. in part, revd. in part and
remanded 184 F.3d 786 (8th Cir. 1999); see also Hinshaw’s, Inc.
v. Commissioner, T.C. Memo. 1994-327 (requiring recognition of
prepayment for extended warranty services in year of receipt, in
circumstances nearly identical to instant cases). Thus, the
basis for deferral that petitioners claim is only available to
them if they meet the conditions of eligibility. See Mulholland
v. United States, supra. It is not an abuse of discretion for
respondent to impose as a condition on the election of the method
in Rev. Proc. 92-98, supra, the requirement that petitioners use
the method in Rev. Proc. 92-97, supra, to account for their
11 Petitioners attempted to advance the argument on brief
that the amounts paid to Western General were not income to them
at all. We concluded, supra, that this issue was not properly
raised. In any event, such an argument offers no basis for the
deferral of income; it concerns exclusion of income, not
deferral.
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