- 18 -
Noting that the taxpayer was not obligated to make additional
purchases under the settlement agreement and that receipt of the
total discount was not certain, the Board held that the
taxpayer's income would not be accurately reflected were it
required to accrue the full amount of the potential discount
prior to receipt. Id. at 384.
We find the decision in John Graf Co. v. Commissioner,
supra, of little relevance to the present dispute. The John Graf
Co. case addressed the issue of whether discounts not yet
received should be accrued in income;9 it did not address the
issue of whether recognition of discounts actually received
subject to a contingent repayment obligation could be deferred.
As to this latter issue, it is well settled that contingent
repayment obligations do not operate to defer the recognition of
income:
If a taxpayer receives earnings under a claim of right
and without restriction as to its disposition, he has
received income which he is required to return, even
though it may still be claimed that he is not entitled
to retain the money, and even though he may still be
adjudged liable to restore its equivalent. * * * [N. Am.
Oil Consol. v. Burnett, 286 U.S. 417, 424 (1932).]
9 A number of the purchase contracts at issue in the
present case contained provisions for additional discounts to be
paid if Westpac met certain volume purchase targets. Unlike the
Commissioner's position in John Graf Co. v. Commissioner, 39
B.T.A. 379 (1939), respondent does not contend that those future
discounts should be accrued in income prior to their receipt.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011