Toyota Town, Inc. - Page 20





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          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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