Legal Document

481 U.S. 239 107 S.Ct. 1732 95 L.Ed.2d 226 UNITED STATES, Petitionerv.GENERAL DYNAMICS CORP., et al. No. 85-1385. Argued Jan. 13, 1987. Decided April 22, Syllabus Under the "all events" test, as embodied in Treasury Regulations, an accrual-basis taxpayer is entitled to deduct a business expense for taxable year which all events have occurred determine fact of taxpayer's liability, and amount that liability can be determined with reasonable accuracy. In at issue, consolidated federal income tax return was filed by General Dynamics Corporation several its wholly owned subsidiaries (hereafter respondent). Respondent accrual basis whose fiscal calendar year. Beginning 1972, it became self-insurer regard employee medical care plan. To receive payment reimbursements, employees must submit claims forms benefits personnel, who verify eligibility forward worthy plan's administrators, processors review approve covered expenses payment. account delay between provision services claims, respondent established reserve accounts reflecting received, but still not paid for, December 31, 1972. On amended 1972 return, sought refund based on claimed deduction accrued expense. The Internal Revenue Service disallowed deduction, Claims Court sustained it, holding respondent's had taken place when received services, could Appeals affirmed. Held: Where filing condition precedent providing cannot close estimate obligation pay obtained or their qualified dependents during final quarter year, been reported employer. Pp. 242-247. (a) proposed fails test because depends mere before last event necessary fix receipt individuals, properly documented forms. Such technicality, nor possibility some might file after receiving "extremely remote speculative." 242-245. (b) has demonstrated any firmly Although parties stipulated rendered year's end, processed time, failed show what portion end even knew specific yet processed. may able make reasonably accurate actuarial how many would justify deduction. If permitted such Congress retained 26 U.S.C. § 832(b)(5), allows insurance companies additions reserves "incurred reported" claims. 245-247. 773 F.2d 1224 (CA Fed.1985) reversed. MARSHALL, J., delivered opinion Court, REHNQUIST, C.J., BRENNAN, WHITE, POWELL, SCALIA, JJ., joined. O'CONNOR, dissenting opinion, BLACKMUN STEVENS, joined, post, p. 247. Alan I. Horowitz, Washington, D.C., petitioner. Lynne E. McNown, Chicago, Ill., respondent. Justice MARSHALL Court. 1 issue this case whether 2 * Taxpayers, respondents herein, are (General Dynamics).1 uses method accounting purposes; same From 1962 until October 1, purchased group from two private carriers. plans. Instead continuing purchase outside carriers, undertook out own funds, while employ carriers administer 3 reimbursement treated persons were eligible under applicable plan time treatment. Eligible then forwarded administrators. those 4 Because processing takes do always immediately, there Dynamics. lag, reflect It estimated assistance former 5 Originally, did computing 1977, however, (IRS) began audit claiming expense, seeking refund. IRS relief 6 satisfied Treas. Reg. 1.461-1(a)(2), C.F.R. 1.461-1(a)(2) (1986), since Thus, court held Cl.Ct. 250 (1984). Federal Circuit affirmed, largely opinion. 1224, 1226 (1985). 7 United States question occurred.2 We granted certiorari, 476 1181, 106 2913, 91 543 (1986). reverse. II 8 As we noted v. Hughes Properties, Inc., 593, 600, 2092, 2096, 90 569 "incurred" so entitle 162(a) Code, 162(a), governed originated Anderson, 269 422, 441, 46 131, 134, 70 L.Ed. 347 (1926). obliged 1916 profits munitions sales took 1916. assessed therefore formally due 1917, fixed now provides "[u]nder accounting, deductible thereof accuracy."3 9 fundamental that, although they become payable, first established. This consistent our prior holdings contingent, see Lucas American Code Co., 280 445, 452, 50 202, 204, 74 538 (1930), contested, Security Flour Mills Co. Commissioner Revenue, 321 281, 284, 64 596, 597, 88 725 (1944). Nor anticipated no matter statistically certain, if Brown Helvering, 291 193, 201, 54 356, 360, 78 (1934); cf. Automobile Assn. States, 367 687, 693, 81 1727, 1730, 1109 (1961). 10 think case, like Brown, involves does pass test. disagree legal conclusion courts below individuals.4 A person only obtain filling submitting health-expense-benefits claim form. App. 23. Employees informed submission satisfactory proof charges Id., 58. thus liable filed.5 Some through oversight, procrastination, confusion over coverage provided, fear disclosure employer extent nature plainly entitled. technicality. crucial establishment part taxpayer. failure represent type speculative possibility" Hughes, U.S., 601, S.Ct., 2097, render otherwise contingent. Cf. North Texas Lumber 281 11, 184, 668 (1930) (where executory contract sale created papers effect transfer prepared unconditional price gain realized 1917). Mere which, instances, will submitted not, judgment, constitute link chain creating purposes 11 treatment 26. record against burden proving entitlement Helvering Taylor, 293 507, 514, 55 287, 290, 79 623 (1935). Here, made showing demonstrate deducted represented establish shown occurred, permissible. 12 say unable forecast period, arise Based data, But alone supra, taxpayer, general agent companies, take representing premiums returned percentage policies cancelled future years. well capable estimating degree accuracy ratio cancellation refunds already establishing accordingly. Despite "strong probability written year" cancelled, "no accrues cancellations expected occur years, create year." 200, 359. proposition particular set likely appropriate conservative measure, warrant See 692, 1729; 204. 13 That these intended fall within further specifically permits (IBNR) 832(b)(5) (providing company treat losses incurred unpaid outstanding year"); 832(c)(4) (permitting defined 832(b)(5)).6 actuarially reported, needed maintain explicit reserves.7 14 judgment 15 Reversed. 16 whom STEVENS join, dissenting. 17 Section 446(a) 1954 "shall computed regularly computes his keeping books." recognizes use "an method," 446(c)(2), "incurred," regardless actually paid. 162(a). long applied Service, 1.461-1, today applies rigid version retreats most recent application unnecessarily drives greater wedge financial methods, I respectfully dissent. 18 calls revisit addressed Term At Properties casino operator utilizing amounts guaranteed "progressive" slot machines won playing patron. progressive machine jackpot size increases money gambled machine. Nevada law, prohibited reducing jackpot. concluded, therefore, operator's despite four rejected argument arose upon winning patron's pull handle, though conceivable never won: 19 "There possibility, course, go business, surrender lose license, into bankruptcy, result indicators patrons. potential nonpayment exists every method, prevent accrual. See, e.g., Wien Consolidated Airlines, Inc. Commissioner, 528 735 (CA9 1976). 'The existence absolute necessary; certainty discharged not.' Russian Finance & Constr. Corp., 77 324, 327 (CA2 1935)." 605-606, 2099. 20 my view, circumstances differ little Properties. here reserved provided employees' received. various plans schedules hospital benefits, contractual presentation claim. found once employee. 25. Once relevant benefit effect, avoid terminating 133-134. Neither extinguish firing benefits. 87. 21 true, theoretically possible differs speculation casino. observed exists, beneficiary option waiving payment, unquestionably liability. An injured absolutely workers' compensation statute, example, fail utilize services. employer, law creates 1976) (holding payments injury workers benefits). Similarly, ultimately check cashed recipient. There doubt, possibilities defeat right incurred. 22 "routine" "ministerial nature," 250, 254 (1984), majority finding. Ante, 244, n. 4. Instead, holds "as liability." Ibid. Even if, technical sense, correct precondition "merely formal contingenc[y], [one] highly improbable known facts," viewed insufficient preclude deductibility. J. Mertens, Law Income Taxation 12.62, 241 (M. Weinstein, R. Donovan, P. Gaveras, H. Piech, Neeld rev. 1985). Indeed, very announced (1926), concluded should assessed—in Government tax. recognized "[i]n sense argued accrue becomes due," occurred. 134. Continental Tie 286 52 529, 76 1111 (1932), immediately include railroads neither awarded years later. explained railroad vested statute Interstate Commerce Commission, "[t]he award passage Transportation Act. What remained administrative procedure ascertain paid." 295, 530. Clearly, arises rendered; purely routine ministerial, contingency, correctly perceived below. 23 burdens taxpayers expanding difference methods without compelling reason so. Obviously, principles often accounting. goal "is provide useful pertinent information management, shareholders, creditors," "the responsibility protect public fisc." 603, 2098. Therefore, prudent businesses merely foreseeable, fixed. expressly inception practical adjustment competing interests permitting protecting fisc. Unfortunately, ignores pragmatic roots instead essentially mechanistic unrealistic manner. less than range both routinely approved other variety circumstances, Respondents here. them single entity. seek Pet. Cert. 2. regulation force identical present version. (1972). incorporated Deficit Reduction Act 1984, Pub.L. 98-369, 98 Stat. 598, 607, 461(h)(4) (1982 ed., Supp. III). 461(h) imposed limits "in determining respect item shall met earlier economic performance occurs." 461(h)(1). portions 1984 amendments Tax Reform 1986. apply case. effective July 18, date enactment 91(g)(1)(A), 461 note While elect 91(g)(2), indication done address decided 461(h), legislative history indicates . liabilities, require another person, occurs made." H.R.Rep. 98-432, pt. 2, 1255 (1984); also H.Conf.Rep. 98-861, 872 U.S.Code Cong. Admin.News pp. 697, 918, 1560. challenge Court's factual "routine," "clerical," findings conclude by, discharging terminated claim, reimburse employee, 22—but true During employees, insurers maintained IBNR Cl.Ct., 252. deductions provisions Subchapter L.

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