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debtors by mail that the automobiles would be sold unless the
debtors within 10 days made the delinquent loan payments or fully
paid off the loans.
Upon failure of the debtors to make the delinquent loan
payments or to fully pay off the loans, the automobiles would be
repurchased by petitioners at what were essentially private
sales, and the automobiles would be returned to petitioners’ used
automobile inventory for resale to retail customers or to
wholesalers. In this manner, many of petitioners’ automobiles
were sold, repossessed, placed back into petitioners’ automobile
inventory, and resold a number of times. Occasionally,
automobiles to be repossessed were not located, and occasionally
automobiles were voluntarily returned by the debtors.
For the years in issue, petitioners’ books and Federal
corporation income tax returns were prepared using the accrual
method of accounting.
Generally, with regard to past due or delinquent automobile
loans, upon repossession or return of the automobiles securing
the loans, all but $100 of the outstanding balance due on the
loans would be charged off on petitioners’ corporate Federal
income tax returns as business bad debt deductions. The $100
amount was arbitrary and reflected the value, for tax purposes,
that was allocated by petitioners to each and every repossessed
or returned automobile, regardless of make, year, and condition.
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