Delbert L. and Margaret J. Baker - Page 10

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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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