Luther teaches CPA review courses on either a guaranteed or nonguaranteed basis. Under the contractual guaranteed program, students pay higher tuition and, if they fail the CPA examination, are entitled to a full refund within two weeks of the release of the results. The CPA review course contracts require him to place the tuition in a set-aside escrow account until the students pass the exam; he established an escrow account as a qualified trust account for this purpose. The registration fee and tuition must be paid in full before the clasess begin. Thus, students enrolled in the class that started in January 20x1 paid their tuitionin December 20x0. In 20x0, Luther deposited registration fees and tuition, including $30,000 in guaranteed tuition payments for the winter 20x1 courses, into a qualified trust escrow account. Does Luther report the $30,000 as income in 20x0 or 20x1? How are the refunds paid in 20x1 treated for tax purposes?

Please state the authority for your conclusion.

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