The Charles Schwab Corporation and Includable Subsidiaries - Page 15

                                           - 15 -                                            
          on the trade date or on the settlement date.  Neither party                        
          cites, nor did we find, any cases directly on point.5  The                         
          question of when an accrual basis securities broker must accrue                    
          commissions earned on securities transactions appears to be one                    
          of first impression.                                                               
                Petitioner kept its books and records and filed its income                   
          tax returns using the accrual method of accounting.  Under the                     
          accrual method, income is to be included for the taxable year                      
          when (1) all the events have occurred that fix the right to                        
          receive such income, and (2) the amount can be determined with                     
          reasonable accuracy.  Secs. 1.446-1(c)(1)(ii), 1.451-1(a), Income                  
          Tax Regs.  The parties do not dispute that the second prong of                     
          the test--that the amount of the commissions can be determined                     
          with reasonable accuracy--is met as of the trade date.  Our                        
          discussion is thus limited to whether petitioner had a fixed                       
          right to receive the commission income as of that date.                            
                Under the all events test, it is the fixed right to receive                  
          the income that is controlling and not whether there has been                      
          actual receipt thereof.  Spring City Foundry Co. v. Commissioner,                  
          292 U.S. 182, 184-185 (1934).  The taxpayer’s right to receive                     
          income is fixed upon the earliest of (1) the taxpayer’s receipt                    


                5We note that in Rev. Rul. 74-372, 1974-2 C.B. 147, the IRS                  
          ruled that a stock brokerage business using the accrual method of                  
          accounting must accrue commission income on the trade date,                        
          rather than on the settlement date.  Respondent's position herein                  
          is consistent with this ruling.                                                    




Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011