[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 617-619]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Procedure and Administration--Table of Contents
 
Sec.  1.9002-1  Purpose, applicability, and definitions.

    (a) In general. The Dealer Reserve Income Adjustment Act of 1960 (74 
Stat. 124) contains transitional provisions relating to adjustments to 
income resulting from a change in the income tax

[[Page 618]]

treatment of dealer reserve income. The purpose of the Act is to provide 
eligible taxpayers who elect to have its provisions apply with two 
alternatives for accounting for the adjustments to income resulting from 
a change to a proper method of reporting dealer reserve income. The Act 
also provides certain taxpayers with an election to pay in installments 
any net increase in tax. Eligible taxpayers must make any election under 
the provisions of the Act prior to September 1, 1960. If any election is 
made, then the applicable provisions of the Act and Sec. Sec.  1.9002-1 
to 1.9002-8, inclusive, shall apply.
    (b) Eligibility to elect. In order to be eligible to make any of the 
elections provided by the Act, a taxpayer must have, for his most recent 
taxable year ending on or before June 22, 1959, (1) computed, or been 
required to compute, taxable income under an accrual method of 
accounting, and (2) treated dealer reserve income (or portions thereof) 
which should have been taken into account (under the accrual method of 
accounting) for such most recent taxable year as accruable for a 
subsequent taxable year. Thus, the elections provided by the Act are not 
available to a person who, for his most recent taxable year ending on or 
before June 22, 1959, reported dealer reserve income under a method 
proper under the accrual method of accounting or who was not required to 
compute taxable income under the accrual method of accounting. An 
election may be made even though the taxpayer is litigating his 
liability for income tax based upon his treatment of dealer reserve 
income, whether in The Tax Court of the United States or any other 
court, and an election filed by a taxpayer who is litigating his 
liability for income tax based upon his treatment of dealer reserve 
income does not constitute a waiver of his right to continue pending 
litigation until final judicial determination. He must, however, comply 
with the provisions of the Act and the regulations thereunder.
    (c) Definitions. For purposes of the Act and Sec. Sec.  1.9002-1 to 
1.9002-8, inclusive:
    (1) The Act. The term the Act means the Dealer Reserve Income 
Adjustment Act of 1960 (74 Stat. 124).
    (2) Dealer reserve income. The term dealer reserve income means:
    (i) That part of the consideration derived by any person from the 
sale or other disposition of customers' sales contracts, notes, and 
other evidences of indebtedness (or derived from customers' finance 
charges connected with such sales or other dispositions) which is:
    (a) Attributable to the sale by such person to such customers, in 
the ordinary course of his trade or business, of real property or 
tangible personal property, and
    (b) Held in a reserve account, by the financial institution to which 
such person disposed of such evidences of indebtedness, for the purpose 
of securing obligations of such person or of such customers, or both; 
and
    (ii) That part of the consideration:
    (a) Derived by any person from a sale described in subdivision 
(i)(a) of this subparagraph in respect of which part or all of the 
purchase price of the property sold is provided by a financial 
institution to or for the customer to whom such property is sold, or
    (b) Derived by such person from finance charges connected with the 
financing of such sale, which is held in a reserve account by such 
financial institution for the purpose of securing obligations of such 
person or of such customer, or both. Thus, the term includes amounts 
held in a reserve account by a financial institution in transactions in 
which the customer becomes obligated to the institution as well as such 
amounts so held by a financial institution in transactions in which the 
taxpayer is the obligee on the contract, note, or other evidence of 
indebtedness. For purposes of the definition of the term ``dealer 
reserve income'' it is immaterial whether or not the taxpayer guarantees 
the customer's obligation in excess of the reserve retained by the 
financial institution. The term does not include the consideration 
derived from transactions relating to the sale of intangible property 
such as stocks, bonds, copyrights, patents, etc. Further, the term does 
not include consideration derived by the taxpayer from transactions 
relating to the sale of property by a person not the taxpayer or to 
casual sales of property not in the

[[Page 619]]

ordinary course of the taxpayer's trade or business.
    (3) Financial institution. The term financial institution means any 
person regularly engaged in the business of acquiring evidences of 
indebtedness of the kind described in section 5(a)(1) of the Act, or of 
financing sales of the kind described in section 5(a)(2) of the Act, or 
both. It thus includes banking institutions, finance companies, building 
and loan associations, and other similar type organizations, as well as 
an individual or partnership regularly engaged in the described 
business.
    (4) Taxpayer. The term taxpayer means any person to whom the Act 
applies.
    (5) Other terms. All other terms which are not specifically defined 
shall have the same meaning as when used in the Code except where 
otherwise distinctly expressed or manifestly intended.

[T.D. 6490, 25 FR 8371, Sept. 1, 1960]