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On this record, petitioners have failed to show error in
respondent’s determination insofar as it is premised on the
conclusion that petitioners purchased insurance from Western
General.
Moreover, in Hinshaw’s, Inc. v. Commissioner, T.C. Memo.
1994-327, we held in virtually identical circumstances that the
prepayment of a multiyear insurance policy covering the
taxpayer’s obligations under a multiyear vehicle service contract
is not deductible in the year of payment but must be amortized
over the life of the coverage. We reasoned that the taxpayer
acquired a long-term asset by purchasing insurance covering a
period greater than 1 year and that, since the taxpayer benefited
from the coverage for more than 1 year, the cost must be
capitalized. See id.; see also Johnson v. Commissioner, 108 T.C.
at 488.12
Petitioners attempt to distinguish Hinshaw’s, Inc. v.
Commissioner, supra, on the basis that the “policies” obtained
12 In Johnson v. Commissioner, 184 F.3d 786 (8th Cir. 1999)
affg. in part, revg. in part and remanding 108 T.C. 448 (1997),
the Court of Appeals for the Eighth Circuit affirmed our holding
that the cost of insurance premiums was required to be
capitalized and amortized over the life of the coverage.
However, the Court of Appeals reversed with respect to certain
fees paid for administrative services provided by an
administrator unrelated to the insurer, holding that such fees
were deductible in the year of payment. See id. at 789. Here,
petitioners have stipulated, and the other evidence indicates, as
discussed supra, that all amounts paid to Western General were
for insurance costs.
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