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the notice of deficiency for the years in issue, respondent
determined that amounts represented by the customer credit
balances outstanding as of the close of the taxable years in
issue constitute income in such year (to the extent not
previously included in income), regardless of how long each
particular credit balance had been outstanding. In response to
respondent’s determination, petitioner contends that the amounts
reflected by the customer credit balances constitute income only
if and when such credit balance is applied toward subsequent
purchases.
OPINION
In his posttrial brief, respondent now concedes that the
portion of the customer credit balances attributable to product
returns does not constitute gross income to petitioner, and we
accept his concession in this regard. Given respondent’s
concession, the sole issue for decision is whether petitioner
must include in income the customer overpayments remaining on
hand at the close of the taxable periods in issue. The parties
agree that the issue should be analyzed under the “claim of
right” doctrine.
The claim of right doctrine was established by the Supreme
5(...continued)
an obligation in favor of the customer. In other words, the
credit balance still appeared on the customer’s account, and the
customer was still entitled to have the balance refunded or
applied toward additional purchases.
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Last modified: May 25, 2011