New Tax Rules for Service Warranty Contracts

Document Type



Published by the American Institute of Certified Public Accountants in the Journal of Accountancy, volume 175 issue 5, 1993. Bryant users may access this article here.


American Institute of Certified Public Accountants

Publication Source

Journal of Accountancy


In order to alleviate the cash flow problem created when a retailer collects an advance warranty fee and then pays an insurance premium, Revenue Procedure 92-98 allows retailers and certain other taxpayers to elect a new accounting method. The service warranty income method spreads out recognition of income from service warranty contracts over a period of years. The income amount represents the present value of the amount paid for warranty insurance. This new method of accounting for service warranty income is available to any accrual method manufacturer, wholesaler, or retailer that meets certain conditions. Election of the service warranty method can be made for any taxable year ending on or after June 12, 1992.