Supreme Court of the United States

Commissioner of Internal Revenue v. Hansen

June 22, 1959360 U.S. 446

Summary

The Supreme Court held that amounts retained by finance companies and credited to dealers' reserve accounts constitute accrued income to the dealers at the time the finance companies record them as liabilities, reversing the Ninth and Eighth Circuits and affirming the Seventh Circuit. The Court reasoned that the dealers acquire a fixed right to receive those amounts, satisfying the accrual method’s requirement that the right to receive, not actual receipt, determines inclusion in gross income.

Holding

  • Whether amounts retained by finance companies and credited to dealers' reserve accounts constitute accrued income to the dealers under the accrual method of accounting.. Yes. The retained percentages are accrued income to the dealers at the time the finance companies record them as liabilities because the dealers acquire a fixed right to receive those amounts.
  • Whether the lower courts erred in their treatment of the retained amounts for tax purposes.. The Ninth and Eighth Circuits erred and are reversed; the Seventh Circuit was correct and is affirmed.

Docket 380

Cited authorities

  • Rev. Rul. 57-2
  • 55 Stat. 687

Cited by

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