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cancellations was so low that the right should be disregarded, we
emphasize that it is the bona fide existence of such a right, not
the exercise or frequency of exercise, which controls. Because
the cancellation right is State granted,6 we do not face a
situation where the outcome might implicate questions concerning
the nature and legitimacy of the bargain between particular
parties. Also, we would be hard pressed to say that the right
here was illusory when cancellations did occur, and corresponding
refunds were given, in the course of petitioner’s business.
The consequence of this fixed right is that, to the extent
Commissioner v. Indianapolis Power & Light Co., 493 U.S. at 210,
identifies an advance payment as one which protects against the
risk that the buyer will back out before the seller has a chance
to perform, the preneed contracts and payments fail to serve that
function. Moreover, the practical reality of the funeral
services business renders this situation analogous to the factual
6 Although the early case of Angelus Funeral Home v.
Commissioner, 47 T.C. 391 (1967), affd. 407 F.2d 210 (9th Cir.
1969), expressly dealt only with whether amounts should be
excluded from income as trust funds and did not consider a
deposit rationale, the facts and result support our analysis
here. In that case, payments made under the mortuary’s revised
preneed contracts were deemed taxable upon receipt (for lack of
trust), id. at 398, and would not appear to have been otherwise
excludable as deposits. The Court noted that such refunds as the
mortuary gave were made “voluntarily”, and it “was not obligated
to refund any moneys collected pursuant to the terms of the
contracts”. Id. at 394. Nor, in any event, does it appear that
the mortuary raised refundability as a defense to accrual of the
income from the revised contracts. Id. at 397-299; see also
Angelus Funeral Home v. Commissioner, 407 F.2d at 213-214.
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