Issue: Are pre-need payments, collected by an accrual-basis funeral home for funeral contracts, prepaid income for taxpayers or merely deposits, especially when such payments are refundable pursuant to state law at any time until goods and services are furnished?

(A Tax Court Memorandum case decision is likely the authority needed. Of course, a court case may be the most appropriate authority when it interprets, for example, an I.R.C. section and has similar facts to the facts of the taxpayer in this Tax Research Problem. Possibly other cases, referred to by the most appropriate authority or not, may be helpful to include in the memorandum.)

Facts: Funeral Home, an accrual basis taxpayer, sells pre-need funeral contracts. The customer pays in advance. Payments are refundable, at the purchaser's request, pursuant to state law, at any time until the goods and services are provided. The I.R.S. agent's position is that prepaid income is income, although the client has argued that the payments are deposits not prepayments.

Please prepare Tax Research Memorandum