Signet Banking Corporation - Page 18

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          billing dispute; and that petitioner may change the cardholder              
          agreement at any time.  However, the cardholder has no assurance            
          that those services will continue; petitioner can cancel the card           
          at any time without refunding the annual membership fee.                    
               Similarly, petitioner argues that it should be allowed to              
          defer reporting the fees at issue here because they are called              
          “annual membership fees”.  We disagree because the name of the              
          fee does not override (nor does petitioner contend that it                  
          overrides) the provisions of the agreement that establish the               
          rights and obligations of the parties.                                      
               Petitioner argues that respondent’s reliance on the                    
          cardholder agreement improperly places form over substance.                 
          Under petitioner’s argument, the “substance” of the transaction             
          is that petitioner provides many services for cardholders                   
          throughout the year, and the “form” of the transaction is found             
          in the cardholder agreement.  We disagree.  The cardholder                  
          agreement establishes the rights of cardholders and the card                
          issuer.  It provides that the payment is in consideration of the            
          issuance of the card and establishment of a credit limit.  An               
          accrual method taxpayer recognizes income when all of the events            
          have occurred which fix the right to receive the income.  Secs.             
          1.446-1(c)(1)(ii), 1.451-1(a), Income Tax Regs.  Contrary                   
          to petitioner’s contention, the rights and obligations of the               
          parties are the substance of the matter.  Even though petitioner            
          urged cardholders to read and retain a copy of the agreement                



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Last modified: May 25, 2011