- 20 -
time of their actual receipt, that controlled when the reserves
must be reported as income. Id. at 464. In reply to the
dealers' second argument, the Court observed that only one of two
things could happen to the reserves: Either they would be paid
to the dealer or applied in satisfaction of the dealer's
obligations to the finance company. As the dealer would thus
effectively receive the entire amount of the reserves in all
events, the right to receive the reserves was not conditional but
absolute at the time they were withheld and credited to the
dealer's account, and the dealer accordingly realized income at
that time. Id. at 465-466.
In General Gas Corp. v. Commissioner, 293 F.2d 35 (5th Cir.
1961), affg. 33 T.C. 303 (1959), the taxpayer was a natural gas
distributor that sold the installment paper generated by sales of
tanks and appliances to its customers to a finance company for a
price equal to its face amount, which included finance charges
payable ratably over the full term of the installment contract.
The finance company paid the taxpayer only 90 percent of the
merchandise price, withholding the remaining 10 percent plus the
amount of the finance charges in a dealer reserve account to
secure the taxpayer’s guaranty of payment on the installment
paper. The taxpayer did not currently include the reserves in
its income. Affirming this Court, the Court of Appeals followed
Hansen, reasoning that since the entire amount of the reserves
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011