Document: 360 U.S. 446 79 S.Ct. 1270 3 L.Ed.2d 1360 COMMISSIONER OF INTERNAL REVENUE, Petitioner,v.John R. HANSEN and Shirley G. Hansen. Petitioner, v. Burl P. GLOVER. Clifton E. BAIRD Violet L. Baird, Petitioners, REVENUE. Nos. 380, 381, 512. Argued April 29, 30, 1959. Decided June 22, Mr. Meyer Rothwacks, Washington, D.C., for Commissioner of Internal revenue. Emmett McInnis, Jr., Seattle, Wash., respondents W. S. Miller, Little Rock, Ark., respondent Glover. Lester M. Ponder, Indianapolis, Ind., petitioners Baird. Justice WHITTAKER delivered the opinion Court. 1 These federal income tax cases present questions concerning proper timely accrual gross deriving from sales commercial installment paper by retail dealers to finance companies. The taxpayers involved i these are two automobile a house trailer dealer. All keep their books on basis. Most 'credit sales.' It appears that they generally negotiate, consummate, such in accordance with common pattern. dealer his customer agree upon 'Cash Delivered Price' particular vehicle owned In part payment price makes down dash or 'trade in,' both. To remaining balance cash there is added cost insurance 'finance charge.' aggregate sometimes called 'Deferred Balance.' evidenced secured an assignable negotiable instrument retaining defeasible title lien vehicle—generally form supplied company which may then be doing business—and signed customer, dealer, made payable him monthly installments over agreed period—one three years automobiles five trailers. Thereupon, delivers memoranda bill sale as will enable register, license use it. 2 Soon after completion procedures, sell (discount) those instruments (hereafter 'installment paper') companies formula fixed price, guarantee payment, whole part, paper. Under contracts between respective here concerned, latter, receipt acceptance paper, obligated pay immediately major percentage purchase but thereby also authorized retain credit it 'dealers Reserve Account' name purpose securing performance guarantor, endorser, other liabilities company. 4 recorded was sold, included returns years, received companies, did not accrue include he retained credited reserve accounts. 5 contends year paperto acquired right receive—even though until later year—the money dealers' accounts year, and, hence, amounts constituted accrued should have been year. taxpayers, hand, contend so were never under subject control, always contingent could known, sales, how much, if any, reserves would actually them cash, hence acquire, any receive at time—the reserves, therefore, constitute them. This presents, essence, issue decision cases. 6 On grounds stated, proposed assessment deficiencies certain against involved. taxpayer each petitioned Tax Court redetermination. After hearings, sustained case. review. No. Hansen case, Ninth Circuit reversed, 258 F.2d 585; Glover Eighth 253 735, 512, Baird Seventh affirmed, 256 918. Because asserted conflict circuits cases, question involved,1 because importance administration revenue laws, we granted certiorari all 7 Inasmuch turn same issue, consolidated argument argued together this Court, case following, convenient decide one opinion. Although relevant facts very similar follow pattern just explained, variations think set forth. 8 Respondents John Hansen, husband wife filed joint taxable 1951, 1952 1953 During ('taxpayer'), motorcar Bellevue, kept He frequently sold 'time payments.' bound contract needs operating capital consistently General Motors Acceptance Corporation ('GMAC'). 9 before selling GMAC txpa yer express terms conditions purchases, had its manual covering policies subjects apparently acted That put evidence, intimated evidence findings stated briefs, without contradiction, contained provisions effect duly assigned conditional guaranteed (not specified findings) therefor, 'Dealers security obligations guaranty obligation might incur GMAC. Once remit much accumulated exceeded 5% unpaid balances purchased 10 Upon negotiating time receiving sum payable, prepared, forms GMAC, setting forth compilation figures, including charge, concluding statement 'Time (Deferred) Balance' office installments. When contract, recited acknowledged 'delivery (it) good order.'2 11 taxpayer's consistent practice thereafter assign (and payment) executing assignment printed foot forwarding purchase.3 assignment, remitted taxpayer, 12 return books, return, account. 13 taxes earlier stated. sought redetermination which, hearing, Commissioner, petition review 585, reasons already 358 879, 121, 109. 14 Respondent during 1949, 1950 1951 involved, Pine Bluff, Arkansas, calendar payments, automobile, being customer's promissory note order, period, chattel mortgage automobile. 15 Before transactions letter addressed Universal C.I.T. Credit (obviously written prepared addressee) proposing ('C.I.T.') notes mortgages chose 'acceptable to' C.I.T., agreeing, among things, endorse 'full recourse' accepted repossessed recovered bought him, demand, equal mortgage, or, failing obligation, amount loss incurred 'reserves outlined (C.I.T.'s) arrangement effective (was) (it),' apply sales,4 times 12-month indebted latter 3% dealer.5 16 consummating manner along sale, enabled 17 afterward pursuant referred to, endorsed mortgage) some recourse others full recourse, forwarded purchase. 18 As And, but, review, page 122, 19 Petitioners ('taxpayers'), 1952, 1954 partners firm known 'Baird Trailer Sales' ('the partnership') engaged primarily trailers Salem, Indiana. partnership (informational) fiscal basis, personal returns, many 'the basis,' instrument, trailer, partnership, period. 20 legally limited necessary, practical matter, do so. Prior entered into Minnehoma Financial Company ('Minnehoma'), Tulsa, Oklahoma, Michigan National Bank, Grand Rapids, Michigan, Midland Discount ('Midland'), Cincinnati, Ohio, providing partnership's offered willing buy, throughout contracts. 21 provided Minneoma assumed Minnehoma, unconditionally when due sums it, 95% paid also, wished, portion charge') account Minnehoma.6 22 oral bank that, 'reserve account' partnership. contemporaneously 'collateral assignment' shown margin.7 23 letters. essence 'advance' 97% therefor new used trailers, 'differentials 5%' Midland's Midland.8 They has out, fund exceeds 10% (the partnership's) outstandings, excess (to partnership) automatically.' 24 Here, individual Bank accounts, again, previously Similarly, Commissioner. taxpayers' 918, 291, 238. 25 We turn, first, contention substance, purchaser, obtains loan directly company, company—although collateral company—is property purchaser vehicle, therefore regarded 26 basis (filling omitted necessarily steps) single, 'three-cornered' purchaser; agrees 'a plus cash' term 'cash' must refer price); hat obtain make loan, least owing vehicle; pay, direct out proceeds (in most instances) vehicle. leaves (5% still possession 5%. Nevertheless consent shall assumptions fact only contingently cancellation fails events, belong purchasers, dealers. 27 heavily relying Fifth Texas Trailer-coach, Inc., 251 395, adopted theory largely rested ground, 588, lesser extent, 737. form, inasmuch taxation depends substance affirmed reversed ground alone. 28 agree, course, incidence transaction, Revenue Holding Co., 324 331, 334, 65 707, 708, 89 L.Ed. 981; Helvering F. & Lazarus 308 252, 255, 60 209, 210, 84 226; Bowers Kerbaugh-Empire 271 170, 174, 46 449, 451, 70 886; Weiss Stearn, 265 242, 254, 44 490, 491, 68 1001; United States Phellis, 257 156, 168, 42 63, 65, 66 180, contrary records wholly substance. 29 clearly show every instance, executed (though 'at of' Minnehoma), sent purchase, dealer's contractually respecting it,9 paper; account, 30 clear percentages dealers, vested belonged several pledges thereof 31 brings us whether withheld cover possible losses who employ method accounting, 32 principles governing reporting long settled opinions Security Flour Mills Co. 321 281, 64 596, 88 725; Spring City Foundry 292 182, 184, 54 644, 645, 78 1200; Brown Helvering, 291 193, 199, 356, 359, 725. supra, Chief Hughes, speaking said: 33 'Keeping making distinguished import actual determines inclusion income. becomes fixed, accrues.' pages 184—185, 645. 34 Those questioned here, parties differ application contend, cannot presently compel enforcible recover deemed payout period varies 36 months months, doubtless true having pledged security, prsen tly reserves. But can for, acquisition taxable. 35 next contingencies retentions credits, what receive—in them, liability arising offset like Hence, provide affect No charged thus authorized. 37 follows things happen account: (1) (2) guaranty, endorsement, necessary discharge obligations, remainder cash. 38 Does 'receive' funds taken applied company? seem 'received' pays took view saying: 39 'Ultimately accounts: either satisfy companies.' 924. 40 realistic applied, authorized, cash.10 41 (of paper) complain holding unfairly require available purpose. Though payent taxes, nevertheless expect collateralize liabilities, periods running untaxed funds. Moreover, normal result accounting 587. See 284 285, 597—598, 43 permit escape taxation, portions buyers, well violate § 42(a) 1939 Code amended,11 moreover, afford opportunities allocate advantageous. broad powers determining methods reflect income, Lucas American 280 445, 50 202, 203, 74 538; Automobile Club 353 189—190, 77 712—713, 746 1939, U.S.C. (1952 ed.) 41, U.S.C.A. believing employed 'does income,' 'computation (his) * does income.' Since 1931 Service maintained dealers.12 position, general, accords our view. 45 Dealers Accounts consist charges'13 allow charges,' no event However, whom burden showing owe assess failed adduce support claims. even charges' allowed credits Accounts,' so, identified separated character erc entages Accounts. For sustain entitled special treatment. judgments 380 381 judgment 512 affirmed. 47 DOUGLAS dissents. 48 BLACK consideration Sixth Schaeffer 861, Commissioner's position. Also since Shoemaker-Nash, 1940, B.T.A. 417, line decisions hand Fourth position Johnson 233 952. And Trailercoach, 395; West Pontiac, Cir., 810, (without opinions) stipulations specifically presenting anew court decided supra. entering Hines, P-H Fed.Tax Rep.2d 5694, Modern Olds, 5713, Kilborn 5812), adhered At beginning recital 'The undersigned seller dealer) hereby sells, jointly severally, purchase(s), hereinafter forth, following property, delivery order purchaser,' detailed description computation reverse side recites '(f)or hereunder, title, interest, said fully cash.' goes specify various observed usually found far pertinent, provides: 'For value received, sell, transfer right, interest within herewith submitted covered authorizes act thing collect same. 'In your guarantees hereon, covenants default instalment herein demand *.' record contain C.I.T.'s arrangement.' pertinent parts letter, text, more summarized follows: buy Some 'paper cars distance hauling, than tons capacity, busses, taxi, jitney, 'drive-yourself' service, relatives employees' bear endorsement.' Provisions applicable Three 'accumulated (him),' stopped buying former 'hold liquidation was) completed.' taxpyer 'each car tendered dealer's) place business 90 days maturity earliest unpaid,' car,' 'any deficiency (C.I.T.) resale If prepayment maker, refunded 'service charge,' percentages, refund originally material charge' maker) makers perform repurchase thereon. charge become Minnehoma; as—after Minnehoma—the 15% outstanding purchased, excess, once month, partnership; full, 'COLLATERAL ASSIGNMENT. Valuable Consideration, acknowledged, assigns, transfers, conveys unto successors, assigns forever, irrevocably, his, its, now deposit hereafter deposited represented Bank. 'This Assignment Transfer indirect secure representing renewal renewals thereof, payments Michigan. sme fall thereon principal election, notice election expressly waived, total date meet liability. 'Whenever indebtedness reassign back undersigned. 'If standing, ten per cent (10%) February promptly returned dealer.' vice president handled testified relative 'A. Well, straight words, it's recoursed. given note-maker can't take bank, (and) net pay-off liquidate account.' shows acceptanc automobile) order' (see Note 2); sending guaranteeing covenanting 3). recourse,' subject, undertaken respect thereto 5. customers, taking evidencing trailers; guaranties 6; mortgages, further 7; Midland, endorser Midland. 8. Cf. Old Colony Trust 279 716, 729, 49 499, 504, 73 918; Douglas Willcuts, 296 1, 9, 56 59, 62, 80 3; Tressler 228 6. Section (as amended 114, Act 1941, c. 412, 55 Stat. 687), 42, '(a) rule. items unless, permitted section properly accounted different period.' first publication views G.C.M. 9571, X Cum.Bull. 153 (1931). Its recently published Rev.Rul. 57—2, 1957—1 17, 'Amounts banks employing extent therein briefs clear: art. meaning both erratic elastic. Nor told intends term.

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