SECTION 3. DEFINITIONS

.01 The “service warranty income method” for advance payments is the method of accounting permitted by this revenue procedure and described in section 5 of this revenue procedure.

.02 The “qualified advance payment amount” is the portion of an advance payment received by a taxpayer under a multi-year service warranty contract that is paid by that taxpayer to an unrelated third party within 60 days after receipt for insurance costs associated with a policy insuring that taxpayer’s obligations under the contract.

.03 The classification of goods as “durable consumer goods” for purposes of this revenue procedure depends on the common usage of the goods, rather than the purchaser’s actual intended use of the goods. Thus, a taxpayer qualifying under this revenue procedure does not have to segregate, as non-qualifying advance payments, those payments under multi-year service warranty contracts entered into with a purchaser that will use the underlying durable consumer goods in its trade or business.