Commissioner v. Hansen, 360 U.S. 446 (1959)

Commissioner v. Hansen


No. 380


Argued April 29-30, 1959
Decided June 22, 1959 *
360 U.S. 446

CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

Syllabus

The taxpayers here involved are two retail automobile dealers and a house trailer dealer who keep their books and make their income tax returns on the accrual basis. Obligations of purchasers for deterred payments on installment sales are discounted or sold by them to finance companies, which pay the dealers most of the amounts of cash, but credit to each dealer in a "reserve account" a small percentage thereof which is retained by the finance company to secure performance of the dealer’s obligations under his guaranties or endorsements.

Held: the amounts thus credited to the dealers in "reserve accounts" on the books of the finance companies must be reported as income accrued during the tax years in which they are credited to such reserve accounts. Pp. 447-469.

(a) The retained percentages of the purchase price of the installment paper, from the time they are entered on the books of the finance companies as liabilities to the respective dealers, were vested in and belonged to the respective dealers, subject only to their pledges thereof to the respective finance companies as collateral security for the payment of their then contingent liabilities to the finance companies. Pp. 460-463.

(b) The percentages of the purchase price of the installment paper that were withheld by the finance companies constituted accrued income to these dealers at the time the withheld amounts were entered on the books of the finance companies as liabilities to the dealers, for, at that time, the dealers acquired a fixed right to receive the amounts so retained by the finance companies. Pp. 463-466.

(c) That this holding will require taxpayers to pay taxes upon funds which are not available to them for that purpose is but a normal result of the accrual basis of accounting. Pp. 466-467.

(d) The respective taxpayers here involved have wholly failed to sustain the burden of showing that any part of the amounts credited to them on the books of the finance companies was entitled to special treatment. Pp. 468-460.

258 F.2d 585 and 253 F.2d 735 reversed. 256 F.2d 918 affirmed.