Court Opinion

ID: 4486033
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:08.373694+00
Date Added: 2024-06-11T07:58:28.317843
License: Public Domain

HAMBLEN, J., dissenting. I agree with and join the dissenting opinion of Judge Nims. The action of the majority in this case does more than “reopen a loophole which the Supreme Court thought it had closed in Bliss Dairy”; its action erodes the tax-benefit rule. The majority suggests that respondent would have us go beyond Bliss Dairy. I, however, submit that respondent is asking us only to be consistent with the rule of that case. In Bliss Dairy, the Supreme Court established the tax-benefit rule’s parameters, stating, “the tax benefit rule will ‘cancel out’ an earlier deduction only when a careful examination shows that [a] later event is indeed fundamentally inconsistent with the premise on which the deduction was initially based.” (Fn. ref. omitted.) Hillsboro National Bank v. Commissioner, and United States v. Bliss Dairy, Inc., 460 U.S. 370, 383 (1983). In establishing this version of the rule, the Supreme Court noted the rule’s rationale and opined, the purpose of the rule “is to approximate the results produced by a tax system based on transactional rather than annual accounting.”1 Hillsboro National Bank v. Commissioner, 460 U.S. at 381 (citations omitted; emphasis added); see also Hillsboro National Bank v. Commissioner, 460 U.S. at 377, 378 n. 11, 383, and 388-389. Such a transactionally based tax system would necessitate that, to the greatest extent possible, expenses be matched with the income to which the expenses are associated. Cf. Byrd, Transferee v. Commissioner, 87 T.C. 830, 834 (1986), affd. without published opinion 829 F.2d 1119 (4th Cir. 1987) (“The tax benefit rule avoids distortion of income”). After noting the rule’s rationale, the Supreme Court then examined the rule’s application. The tax-benefit rule functions on a case-by-case basis. In applying the rule, “A court must consider the facts and circumstances of each case in the light of the purpose and function of the provisions granting the deductions.” Hillsboro National Bank v. Commissioner, 460 U.S. at 385. In the case before us, just as in Bliss Dairy, the applicable statutory provision under which deductions were taken is section 162(a). In examining the purpose and function of this deduction, the Supreme Court first states, “The deduction is predicated on the consumption of the asset in the trade or business,” Hillsboro National Bank v. Commissioner, 460 U.S. at 395, and cites section 1.162-3,2 Income Tax Regs., for this proposition. The majority stresses this language but fails to mention that the Supreme Court later emphasizes that a taxpayer should be granted a section 162 deduction only for “those expenses attributable to the business of the taxpayer,” those “direct expenses he has incurred in connection with his income.” Hillsboro National Bank v. Commissioner, 460 U.S. at 396 (emphasis in original). In explaining the purpose and function of section 162, the Supreme Court thus reaffirms the longstanding link between a section 162 deduction and the generation of income by a trade or business.3  A careful consideration of section 1.162-3, Income Tax Regs., additionally reveals this nexus between deduction and income generation. The regulation provides: Taxpayers carrying materials and supplies on hand should include in expenses the charges for materials and supplies only in the amount that they are actually consumed and used in operation during the taxable year for which the return is made, provided that the costs of such materials and supplies have not been deducted in determining the net income or loss or taxable income for any previous year. * * * [Emphasis added.] Words of import in this regulation include the words “in operation during the taxable year” and those preventing double deductions. The phrase “in operation during the taxable year” necessarily entails the primary activity for which all trades and businesses are formed and managed— the generation of income.4 The language preventing double deductions inextricably ties a deduction to income — to the extent an expense has reduced income generated in one taxable period, it may not reduce income generated in succeeding periods. Furthermore, we have clearly accepted this link between deduction and income generation. In Byrd, Transferee v. Commissioner, 87 T.C. at 838, we declared, “Pursuant to section 162(a), the deduction for young plants purchased in the ordinary course of business is allowed with a view to recouping this expense when the plants reach maturity and are thereafter sold.”5  The majority’s reliance on “the consumption of the asset” as the overriding justification for the granting of a section 162 deduction tied to the asset belies the longstanding premise which underlies this deduction. Such deduction’s true raison d’etre rests not on the actual consumption of the asset which is expensed, but on the expensed asset’s contribution to the generation of income by the trade or business. The act of producing income, the act of taking a product to market and risking the fortunes and pitfalls of competition justifies the deduction. In Bliss Dairy, the expensed feed distributed to the dairy’s shareholders in no way contributed to the dairy’s generation of income.6 Similarly, in the case at hand, the expensed items in question have not had and will never have an effect on the generation of income by Schwartz Farms. As a further comment, the majority’s emphasis upon physical consumption of the exact item acquired through the expenditure is an exaltation of form over substance. Just because there has been a physical transformation of seed, fertilizer, water, etc. into an end product (whose value equals or exceeds the cost of production) is not a sound basis for disregarding the spirit of the tax-benefit rule. A requirement that the same physical items be distributed to shareholders is analogous to a requirement that there be an actual recovery of the items previously deducted. Such a requirement of sameness “would introduce an undesirable formalism into the application of the tax benefit rule.”7 Hillsboro National Bank v. Commissioner, 460 U.S. at 382. I also note that the majority’s holding fails to fully consider our decision in Byrd, Transferee v. Commissioner, supra. In Byrd, we required the taxpayers to recapture the deducted cost of young plants which were purchased for sale in the ordinary course of an S corporation’s business but which were distributed as mature plants to the corporation’s shareholders during a liquidation of the corporation.8 In reaching this decision, we applied the tax-benefit rule and stated as follows: the cost of seeds and young plants which are purchased for further development and cultivation prior to sale in later years may be deducted as an expense for the year of purchase, * * * If the purchased [and mature] plants are not sold in the ordinary course of the taxpayer’s trade or business, but are instead converted to a nonbusiness use which does not produce business income, this action would be viewed as inconsistent with the prior deduction, and the tax benefit rule would require that an amount equal to the unwarranted deduction be included in income. * * * * * * * [Taxpayers] deducted the cost of young plants purchased for sale in their business after the plants had grown to mature size. Instead of selling the plants in the ordinary course of their trade or business and realizing income to offset the cost of production, [taxpayers] distributed the plants to its shareholder in liquidation. It is clear that this treatment is “fundamentally inconsistent” with the purpose for which the deduction was taken. * * * [Byrd, Transferee v. Commissioner, 87 T.C. at 837-838; citation omitted; emphasis added.] As this statement from Byrd makes clear, a taxpayer’s liquidating distribution of its marketable products to its shareholders, in lieu of this taxpayer’s sale of its products to generate income “to offset [its] cost of production,” is “fundamentally inconsistent” with the purpose for which the production costs were deducted. This fundamental inconsistency justifies the tax-benefit rule’s application.9 In the case at hand, Schwartz Farms, by its action of distributing mature crops to its shareholders, has failed to generate income through the sale of these crops to offset the costs of seed, fertilizer, water, etc. This liquidating distribution represents a fundamental inconsistency associated with the deducted costs and triggers the tax-benefit rule’s application. Moreover, the majority’s holding fails to fully consider the decision in Ballou Construction Co. v. United States, 611 F. Supp. 375 (D. Kan. 1985).10 In describing the “Sand Deposit in Place,” the asset which Salina Sand distributed in liquidation, the U.S. District Court for the District of Kansas stated, “This asset represented a certain amount of sand which Salina Sand had processed through the first stage of mining, but which had not yet produced income in the normal course of business.” Ballou Construction Co. v. United States, 611 F. Supp. at 376. That court then focused on the section 162(a) deduction which it recaptured under the tax-benefit rule. That recaptured deduction represented the $20,000 cost of removing the overburden from the sand deposit in place. Ballou Construction Co. v. United States, 611 F. Supp. at 376, 377, and 378. The removal of this overburden had enhanced the value of the distributed sand. Ballou Construction Co. v. United States, 611 F. Supp. at 376. Thus, the Ballou court had required the recapture under the tax-benefit rule of an expense which had enhanced the value of a product which was moving toward final form but which had not yet produced income for the deducting company. We should do likewise here. For the sake of argument, I find that the majority is wrong when its focuses on the sand deposit in place as the asset in Ballou which must be “consumed” for purposes of section 162(a). First, the sand deposit in place represents Salina Sand’s marketable product as this product moves through the different stages of production. As such, Salina Sand will never “consume” the sand found in the sand deposit in place. The company would instead complete the processing of this sand and sell the sand as a finished good in the normal course of its business.11 Second, the sand deposit in place was not the subject of the section 162(a) deduction in Ballou. The deduction in that case represented the costs of removing the overburden. This removal had been completed by the time of Salina Sand’s liquidation. This completed removed represented a fully consummated act, a “consumption” or “using-up” of the actions, labor, and processes tied to the carrying of the marketable product in Ballou through the first stage of mining and processing. It was the costs of these “consumed” actions, labor, and processes which were recaptured in Ballou. Though the majority was wrong in focusing on the sand deposit in place as the item subject to consumption, the majority was very correct when it said, “It is clear that the [Ballou] court simply applied the logic of the Supreme Court in Bliss Dairy to the facts before it on the assumption that the deducted costs were directly attributable to the sand deposit in place.” (Emphasis added.) Likewise, the costs deducted by Schwartz Farms in the instant case are directly attributable to the crops which the farm distributed in liquidation. Following the lead of the Ballou court, we should similarly apply the tax-benefit rule to recapture these direct costs, these costs which enhanced the value of a marketable product which was not sold in the normal course of business.12  The majority opines that “Under respondent’s formulation, every business deduction under section 162 would be ‘cancelled out’ if an unforeseen event, not just a corporate liquidation, frustrated the sale of any products which would otherwise have been completed and sold.” This is simply not the case. As the Supreme Court makes clear in Bliss Dairy when a “loss is attributable to the business,” when the deducting trade or business accepts the risk of loss, then the tax-benefit rule’s use is circumscribed. Hillsboro National Bank v. Commissioner, 460 U.S. at 384-385 and n. 18. Consequently, any unforeseen event does not inevitably result in the rule’s recapture. In the instant case, moreover, we are not faced with an unforeseen event. Schwartz Farms voluntarily decided to liquidate. In doing so, the liquidating farm chose not to subject its products to the risk of loss, whether that loss should occur in the market place or from an unforeseen event. It is in the context of this farm’s voluntary action that we must consider respondent’s argument and apply the tax-benefit rule. At this point, I also find it necessary to respond to the majority’s reliance on section 464 and the special accounting provisions applicable to farmers. The majority’s decision to turn to section 464 to add meaning to the term “consume” would suggest that in the future we must similarly search high and low for talismanic words to define the term “consume” within the context of different trades or businesses prior to our applying the majority’s rule. That this seems to be the logical result of the majority’s analysis should elicit at least a statement of concern from the majority. Furthermore, the majority’s use of section 464 as a statutory tool which stymies the proper application of the tax-benefit rule in this case leads to a suggestion that Congress has acted where it indeed has not. Congress did not restrict the tax-benefit rule’s application under section 464; it instead established that rule’s exclusionary element in section 111. We should not legislate where Congress has not by implying that Congress did act in wholly unrelated provisions applicable to ongoing business operations. In responding to the majority’s use of the special accounting provisions applicable to farmers as a means of not applying the tax-benefit rule in this case, I again find it instructive to turn to our decision in Byrd. There, we said: [Section 352 of the Revenue Act of 197813] did not change the nature of deductions available to nurserymen, or the purpose and function of such deductions. The changes made by act section 352 were changes in timing; changes in accounting treatments. Deductions taken by nurserymen and farmers are governed by section 162 which is the test for all deductions incurred by a taxpayer in a trade or business. We find the facts of Bliss Dairy similar to those in the instant case and view Bliss Dairy as controlling for our purposes. We must therefore examine the purpose and function of section 162 in light of petitioners’ deductions to determine whether the distribution to Eastern Shore’s shareholder in liquidation was “fundamentally inconsistent with the premise on which the deduction was initially based.” [Byrd, Transferee v. Commissioner, 87 T.C. at 837; emphasis added.] The unquestionable consequence of this language and our final ruling in Byrd is that we recaptured a cost of production which had not been recouped through a subsequent sale. We applied the tax-benefit rule, in spite of special accounting provisions and the Byrd producers’ need not to accumulate inventories.14  As a further comment, I find it necessary to ask just what rule the majority is espousing in this case. To the extent the majority so heavily relies on section 464 and the special accounting provisions applicable to farmers in deciding not to apply the tax-benefit rule, is it suggesting that its holding in this case has reference only to “farmers”? The majority’s citing of cases which do not involve farmers, i.e., Tennessee Carolina Transportation v. Commissioner, 65 T.C. 440 (1975), affd. 582 F.2d 378 (6th Cir. 1978); Estate of Munter v. Commissioner, 63 T.C. 663 (1975), would hint that this is not its intent. However, the majority, through its analysis, has not forthrightly established a rule of general applicability. The majority notes in note 4 of its opinion that the parties to this case have made no suggestion that section 268 is applicable in this instance. However, it is interesting to note the application of this section and its related section 1231(b)(4).15 If section 1231 applies, then a farmer, under the direction of section 268, must recapture deductions, in the form of “expenses, depreciation, or otherwise,” which are attributable to the production of the unharvested crop. These recaptured deductions include those taken in a taxable year other than the year of sale. In applying the tax-benefit rule to the case at hand, I would require of Schwartz Farms no greater burden of tracing and recapturing of expenses than that required by Congress under section 268. I also find it odd that the majority couches its discussion of Spitalny v. United States, 430 F.2d 195 (9th Cir. 1970), within the rubric of Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971). In Consolidated Foods Corp. v. Commissioner, 66 T.C. 436 (1976), we directly cited Spitalny, and the rule for which the majority relies on it, without having to additionally cite Golsen.16 That the majority now finds it necessary to cite Golsen in our applying Spitalny seems to detract from the precedential authority of our own opinion. In sum, the principle laid down by the Supreme Court in Bliss Dairy focuses on transactional parity, which strives to achieve the matching of income and expense, and the tax-benefit rule is triggered by a fundamentally inconsistent event that distorts this matching of income and expense. Thus, the tax-benefit rule applies, without regard to recovery, to fundamentally inconsistent events that distort the matching of income and expense.17  Correlatively, section 162 permits deductions for expenses of a business that are incurred in the quest to produce income. Simply put, the Supreme Court said in Bliss Dairy that deductions should be allowed under section 162 only for those expenses attributable to the business that are directly incurred in connection with the income of the business. Applying these elemental principles to the case before us, it is clear that the fundamentally inconsistent event of liquidation obviated the correlation of crop production expense to the generation of income from the crop. This distortion compels application of the tax-benefit rule in the instant case, as it did in Bliss Dairy. Because the majority opinion implicitly overrules Byrd, perceptibly discriminates in not applying the tax benefit rule to a large, affluent farming operation, and seriously erodes the rule’s application in other areas, and for the reasons above set forth, I respectfully dissent. Chabot, Nims, Parker, Jacobs, Parr, and Ruwe, JJ., agree with this dissent.   The majority accurately notes that the purpose of the tax-benefit rule is “to achieve rough transactional parity in tax.” Throughout their analysis, however, this same majority stresses the deduction of items at the expense of a fully developed discussion related to the second prong of transactional parity — the generation of income. The majority’s decision to ignore income generation obviates what in essence is the sine qua non of transactional parity — the matching of income and expense. As such, the majority’s failure to ask “Where’s the income?” reminds one of a hamburger purchaser’s failure to ask, “Where’s the beef?”    This regulation was initially issued under the authority of sec. 7805. 1958-1 C.B. 63.    That a longstanding link exists between a sec. 162 deduction and the generation of income can be found in tracing the section’s statutory roots. In examining the purpose of sec. 162, the Supreme Court quoted from hearings before the House Committee on Ways and Means of the 75th Congress and noted the section’s 1916 predecessor. A further look to the section’s forebears reveals an even closer link between the taking of the deduction and the generation of income. The act of March 3, 1865, provided that “In estimating deductions from income * * * when any person rents buildings, lands, or other property, or hires labor to cultivate land, or to conduct any other business from which such income is actually derived, * * * the amount actually paid * * * shall be deducted.” Sec. 1 of H.R. 744, 38th Cong., 2d Sess., ch. 78, 13 Stat. 469, 479. (Emphasis added.)    In its opinion, the majority finds it necessary to refer to the dictionary definition of “consume.”' I also find it necessary to emphasize the definition of “business” and “trade” as found in the Random House College Dictionary. There, “business” is defined as “the purchase and sale of goods in an attempt to make a profit, Random House College Dictionary at 183 (rev. ed. 1982), and “trade” is defined as “any occupation pursued as a business or livelihood.” Random House College Dictionary, supra at 1392. (Emphasis added.) With specific application to the case at hand, sec. 1.61-4(d), Income Tax Regs., describes farmers as “individuals, partnerships, or corporations that cultivate, operate, or manage farms for gain or profit.” (Emphasis added.)    In Byrd, we summarized and accepted the Commissioner’s argument thusly: “Respondent however contends that petitioners have lost sight of the fact that the deduction in the earlier year authorized by section 162 is premised on the fact that an expense is necessary to produce income in the ordinary course of one’s business. Respondent asserts that expenses incurred by nurserymen in growing plants are deductible because the plants will be sold to customers in the ordinary course of business. Therefore respondent concludes that since the plants were distributed to shareholders in liquidation this treatment was fundamentally inconsistent with the purpose behind the section 162 deduction. For the reasons set forth below, we agree with respondent. [Byrd, Transferee v. Commissioner, 87 T.C. 830, 836 (1986), affd. without published opinion 829 F.2d 1119 (4th Cir. 1987); emphasis added.]”    No issue was raised in Bliss Dairy regarding the expensed feed that was consumed by the dairy herd prior to the corporate liquidation. The fact that the issue of consumed feed was not placed in issue in Bliss Dairy should be accorded little or no weight. See Perkins v. Endicott Johnson Corp., 128 F.2d 208 (2d Cir. 1942), affd. 317 U.S. 501 (1943). Based upon the facts in the Bliss Dairy opinion, I doubt that the tax-benefit rule could have properly been applied to the feed already consumed by the dairy herd. The nature of a dairy operation suggests that the primary business is the production and sale of dairy products which are normally produced on a daily basis and sold immediately. Under those circumstances, the cost of consumed feed would properly offset income from the production and sale of dairy products. Deductibility of the consumed feed was not based upon any assumptions that were fundamentally inconsistent with the corporate liquidation.    The majority’s emphasis on the term “consumption” may well instigate before our Court and others a future parade of experts in biology, chemistry, and physics, as both the Commissioner and taxpayers attempt to sway our decision and those of other courts that a particular asset has been fully consumed.    The young plants in Byrd were inventoried on a yearly basis as if purchased by a cash basis taxpayer. Byrd, Transferee v. Commissioner, 87 T.C. at 831.    As a general rule, this Court will not look behind a notice of deficiency to examine the evidence used or the propriety of the Commissioner’s motives or administrative policy or procedure in making the determination. Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974); Suarez v. Commissioner, 58 T.C. 792, 813 (1972). Noting such, we should draw no conclusions from the Commissioner’s failure in Byrd to subject further costs of production, other than inventory items, to the recapture of the tax-benefit rule. For a discussion of the tax-benefit rule’s application in the context of an unforeseen event, see infra.    We have cited Ballou approvingly and accepted its discussion of the transactional parity underlying the tax-benefit rule. See Byrd, Transferee v. Commissioner, 87 T.C. at 838.    The sand deposit in place in Ballou is similar to a crop not yet fully matured and harvested. Both assets represent items that will not be consumed by their producers but instead will be enhanced by further actions taken on the part of their producers. These enhancing actions will be the subject of sec. 162(a) deductions. Accepting the above proposition and utilizing the logic of the majority, we should hold in this case that, since the enhanced but unsold asset, unharvested crops, has not been “consumed” by its producer, then the costs directly attributable to this unconsumed asset should be recaptured under the tax-benefit rule.    The majority’s statement that no authority has been offered to support respondent’s position in this case is inaccurate. This inaccuracy is confirmed by the majority’s attempt to cite and distinguish precedent which in actuality supports or in no way contradicts respondent’s position. One example is the majority’s citing of Rev. Rul. 85-186, supra. Regardless of the fact that this ruling simply represents the view of the Commissioner, I point out that the deductions involved in that ruling were taken under sec. 174(a). The purpose and function of sec. 174’s granting of deductions may not be in tandem with those under sec. 162. Additionally, respondent has maintained since at least 1955 a position quite analogous to that which he argues here. In Rev. Rul. 55-138, 1955-1 C.B. 223, 224-225, modified on another issue, Rev. Rul. 68-69, 1968-1 C.B. 80, respondent opined: “This has been done on the assumption that such costs have been a part of the costs incurred in the business of the taxpayer. When the goods become the subject of a contribution or gift they are in effect removed from the business operations of the taxpayer and such costs attributable thereto should likewise be eliminated from business costs.” We have cited Rev. Rul. 55-138, supra, and accepted the consequences of the application of the above-mentioned language. See Martin v. Commissioner, 56 T.C. 1294, 1299 (1971). Finally, we should draw no conclusions from the Commissioner’s failure in those cases cited by the majority to assert as deficient amounts items of a character similar to those amounts in question in the instant case. See note 9 supra.    Sec. 352 of the Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2846-2847, provided as follows: (a) Application of Section, — This section shall apply to a taxpayer who— (1) is a farmer, nurseryman, or florist, (2) is on an accrual method of accounting, and (3) is not required by section 447 of the Internal Revenue Code of 1954 to capitalize preproductive period expenses. (b) Taxpayer May Not Be Required To Inventory Growing Crops. — A taxpayer to whom this section applies may not be required to inventory growing crops for any taxable year beginning after December 31, 1977. (c) Taxpayer May Elect To Change To Cash Method.[0001]T0 — A taxpayer to whom this section applies may, for any taxable year beginning after December 31, 1977 and before January 1, 1981, change to the cash receipts and disbursements method of accounting with respect to any trade or business in which the principal activity is growing crops. (d) Section 481 of Code To Apply. — Any change in the way in which a taxpayer accounts for the costs of growing crops resulting from the application of subsection (b) or (c)— (1) shall not require the consent of the Secretary of the Treasury or his delegate, and (2) shall be treated, for purposes of section 481 of the Internal Revenue Code of 1954 as a change in the method of accounting initiated by the taxpayer. (e) Growing Crops. — For purposes of this section, the term “growing crops” does not include trees grown for lumber, pulp, or other nonlife purposes. [Emphasis added.]    Our action in Byrd supports the notion that accounting rules do not necessarily prevail over general principles of tax economics and substance. Cf. Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979). Moreover, in an instance tied to farmers/sharecrop landlords, we have described a special accounting procedure as “a rule of administrative convenience” but have gone on to state that this rule has “no bearing on the underlying question whether potentially taxable income exists.” Parmer v. Commissioner, T. C. Memo. 1971-320, citing Tatum v. Commissioner, 400 F.2d 242, 247 (5th Cir. 1968), affg. 46 T.C. 736 (1966). This language would consequently imply that questions of income realization may be addressed irrespective of special accounting rules.    Sec. 268 provides: Where an unharvested crop sold by the taxpayer is considered under the provisions of section 1231 as “property used in the trade or business,” in computing taxable income no deduction (whether or not for the taxable year of the sale and whether for expenses, depreciation, or otherwise) attributable to the production of such crop shall be allowed. Sec. 1231(b)(4) states: (4) Unharvested crop. — In the case of an unharvested crop on- land used in the trade or business and held for more than 6 months, if the crop and the land are sold or exchanged (or compulsorily or involuntarily converted) at the same time and to the same person, the crop shall be considered as “property used in the trade or business.” [The above language reflects this section as it appeared in 1975. Changes in the holding period were made for tax years 1977 and 1978.]    There we said: “Although the [tax-benefit] rule is generally addressed to situations in which a deduction in an earlier taxable year is related to a recovery in a later taxable year, the same approach has been applied where both deduction and offsetting recovery occur in the same taxable year. See Connery v. United States, 460 F.2d 1130, 1133 (3d Cir. 1972); Spitalny v. United States, 430 F.2d 195, 198 (9th Cir. 1970); Anders v. United States, 462 F.2d 1147, 1149 (Ct. Cl. 1972), cert. denied 409 U.S. 1064 (1972), rehearing denied 410 U.S. 947 (1973); Estate of David B. Munter, [v. Commissioner, 63 T.C. 663, 674-677 (1975)]. Here, accrued liabilities were satisfied during the same taxable years by crediting surplus bond proceeds against such liabilities — indeed, the liabilities arose and the funds were credited on the same days — and the tax benefit rule should be applied. * * * [Consolidated Foods Corp. v. Commissioner, 66 T.C. 436, 445 (1976).]” Moreover, the Supreme Court has cited approvingly the cases listed in the above quotation. See Hillsboro National Bank v. Commissioner, 460 U.S. at 396 and 402. Spitalny was specifically cited as standing for the proposition that “when deduction and liquidation occur within a single year, though tax benefit rule does not apply, principle does.” Hillsboro National Bank v. Commissioner, 460 U.S. at 401.    The Supreme Court has mentioned that a rancher, a taxpayer similar to a farmer, who uses the cash method possesses substantial flexibility in determining the year in which income is realized. However, the defect of this method is that it produces a bunching of income in the year of sale and “an inaccurate matching of income from the sale of the livestock with the expenses incurred in raising the animals.” United States v. Catto, 384 U.S. 102, 111 n. 15 (1966). (Emphasis added.) To the extent the tax-benefit rule requires a matching of income and associated expense, the rule would override the cash method’s defect.