Service-warranty companies - the hybrid of the insurance industry: companies that sell extended warranty service contracts can take advantage of a tax accounting method available to insurance companies, or use other methods, to account for premiums. This article analyzes the various tax accounting options available to a service-warranty company.

Tax Adviser, The, July, 2007 by Bertolini, Michelle; Lassar, Sharon S.

EXECUTIVE SUMMARY

* Premiums from a service-warranty contract can be taken into account in four different ways: full inclusion; service-warranty accounting; advance payments; or as an insurance company.

* Under the first three methods, the warranty provider is not subject to mandatory C corporation status; however, the insurance company route offers the greatest deferral of income taxes if the policies are of a sufficient duration.

* There are advantages and disadvantages to each method; tax advisers should review how each would affect a client's particular situation.

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