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taxpayers in Hansen were accrual basis retail dealers who sold
automobiles and house trailers on credit and then assigned the
consumer installment paper to a finance company, guaranteeing the
consumer's payment. The finance company paid the dealer cash
equal to the face amount of the installment paper less a
specified percentage that the finance company credited to a
reserve account and withheld as collateral to secure the dealer's
guaranty and other obligations to the finance company.
Periodically the finance company released to the dealer amounts
in the reserve exceeding a stated percentage of the unpaid
balances on installment paper purchased from the dealer. On
their tax returns the dealers currently included in income only
the amounts paid to them by the finance company. The dealers
contended, first, that they had no right to receive amounts that
they could not currently compel the finance company to pay them;
second, their right to receive reserves did not become fixed so
long as the amount that they would ultimately recover was subject
to their contingent liabilities to the finance company.
Accordingly, the dealers argued, there was no basis for accrual
of the reserves as income for the year in which the reserves were
withheld and credited to the dealer's account.
The Supreme Court rejected the dealers' first argument,
stating that, under the accrual method, it was the time of
acquisition of the fixed right to receive the reserves, not the
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