Bob Carburetor is the new owner of Carburetor Cars, an accrual-based corporate taxpayer. At Carburetor Cars, when a vehicle is sold, the dealership tries to sell an auto service contract. The amounts received for these contracts are placed into an escrow account. The agreements grant the buyers the right to have parts or components covered by the contract repaired or replaced, whenever the covered parts experience a mechanical difficulty. The dealer will either provide the services or reimburse the car buyer for the reason-able cost of repair or replacement. Normally, the buyer returns the vehicle to the dealer for repair, but this is not required. In either case, the repairs or replacements must be authorized in advance by an administrator hired by Carburetor Cars. Fees to the administrator of the contracts are paid out of the escrow account. What is the proper tax treatment for the income from the service contracts? When are the payments to the administrator deductible?
Answer to relevant QuestionsBetty Jo Harris lives in Maine with her son, Rick, and husband, Walter Reed. Rick has Lou Gehrig’s disease. Rick’s physician encourages Betty Jo to go to a conference at the Mayo Clinic in Rochester, Minnesota, for ...Ramon, Clarita, and Juan are shareholders in the computer consulting firm 3Geeks. Because the business has had several years of success, Juan is ready to leave the business and requests to be bought out. After negotiations ...Con man Floyd sold Larry the Library of Congress for $ 150,000. Since Larry did not have that kind of money, he embezzled the $ 150,000 from his employer to make the purchase. a. How much gross income should Larry and Floyd ...Carmella really wants to be an actor but she is having trouble getting that “big break” she so desperately needs. To keep food on the table, Carmella has a small tax-preparation business and nets approximately $ 30,000 ...How can finding a BNA Portfolio on point with a practitioner’s tax issue be like hiring someone to do the research?
Post your question