- 21 -
would eventually either be paid to the taxpayer or used to
discharge its liabilities, the taxpayer had a fixed right to
receive, and must currently include, amounts credited to its
reserve account. The Court of Appeals rejected the taxpayer's
argument that Hansen was distinguishable because the reserves
represented, in part, finance charges that the taxpayer would
have reported as income ratably over the term of the installment
contract, as earned, if it had retained the customer’s
installment paper. The Court of Appeals was not persuaded that
the finance charges included in the consideration for the sale of
the paper should be accounted for in the same manner as finance
charges earned and received over time by the holder of the paper.
The Court of Appeals reasoned that the taxpayer materially
altered its economic position by selling the paper. Not only did
it reduce its risk exposure; it also benefited by receiving
immediate credit for an amount corresponding to the full amount
of the finance charges and, depending on the balance in its
account, the credits could produce distributable cash long before
the installments would be collectible from the consumer. Id. at
41.
Since General Gas Corp. v. Commissioner, supra, the courts
have repeatedly held that accrual basis retailers must currently
include the portion of the amount realized on the sale of
installment paper attributable to "participation interest", even
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011