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required to pay certain fees in exchange for a lifetime residence
at Village West. Petitioners were required to pay: (1) A
nonrefundable processing fee of $500; (2) an entrance fee of
$130,015; and (3) an initial monthly service fee of $1,418, which
was subject to annual increases by AFVW.3 The residence
agreement states that in the case of two individual AFVW
residents, the entrance fee is considered paid one-half by each.
Petitioners deducted $34,541 of the entrance fee as a medical
expense on their jointly filed 1989 tax return.4 Petitioners
paid monthly service fees to AFVW of $2,170 and $2,254 for 1997
and 1998, respectively.
Under the terms of the residence agreement, petitioners were
guaranteed several amenities in exchange for their payment of
monthly service fees, including: (1) The emergency-pull-cord
system; (2) 24-hour availability of a licensed nurse from the SNF
to respond to medical emergencies; (3) outpatient and other non-
life-threatening nursing services provided at the Village West
Health Center outpatient medical services clinic by their nursing
3The residence agreement does not indicate how the entrance
fee would be used by Village West. An independent auditor’s
report of AFVW provides that the entrance fees, net of the
portion that is refundable to the residents, are recorded as
deferred revenue and amortized into income. The portion of the
entrance fees that is estimated to be refundable is reflected as
a liability on the statements of financial position.
4The record does not indicate how this figure was
calculated.
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