Artnell Company v. Commissioner, 400 F.2d 981 (7th Cir. 1968)[1] is a decision by the 7th Circuit Court of Appeals, in which the court, distinguishing from the holding in Schlude v. Commissioner,[2] held that accrual method taxpayers are not required to include prepayments in gross income when there is certainty as to when performance would occur.
The petitioner, an accrual method taxpayer, operated the Chicago White Sox professional baseball franchise using a fiscal year for federal income tax purposes. During the 1962 taxable year, the club sold single and season tickets to games to be played during the 1963 taxable year. The petitioner failed to report income from the sales on its 1962 return and instead reported the receipts as income in 1963.
The petitioner's decision to include income from its ticket sales in 1963, rather than 1962, was part of their practice of reporting income from ticket sales as the corresponding games were played.
The Commissioner argued that, in light of Schlude v. Commissioner,[2] the income should have been reported in the year in which the payment was received, the 1962 taxable year.
Issueedit
Must the taxpayer include in gross income for 1962 the sale of proceeds received from tickets allocable to games to be played in 1963?
Holdingedit
No. Despite the general rule that requires accrual method taxpayers to include advance payments in the year of receipt, the court carved out a narrow exception for taxpayers such as the petitioners, who are able to prove that services will be performed on fixed dates in one or more subsequent taxable years.
Rationaleedit
Generally, accrual method taxpayers include income in taxable year it is earned, rather than when it is received. However, the Supreme Court trilogy[3] ending with Schlude[2] required inclusion of prepayments in gross income because of the uncertainties as to when, or if, performance would occur. The court distinguished the facts of Artnell from this holding and found that the uncertainties present in previous cases that required the inclusion of advance payments in the year of receipt were not present. The Court found that the deferred income was attributable to games that were intended to be played on a fixed schedule and that notwithstanding rain delays there was certainty about when services would be performed. The court reasoned that there are some situations where deferral will so clearly reflect income, that the IRS abuses its discretion when it refuses to permit deferral.
Referencesedit
^Artnell Company v. Commissioner, 400 F.2d 981 (7th Cir. 1968).
artnell, company, commissioner, 1968, decision, circuit, court, appeals, which, court, distinguishing, from, holding, schlude, commissioner, held, that, accrual, method, taxpayers, required, include, prepayments, gross, income, when, there, certainty, when, pe. Artnell Company v Commissioner 400 F 2d 981 7th Cir 1968 1 is a decision by the 7th Circuit Court of Appeals in which the court distinguishing from the holding in Schlude v Commissioner 2 held that accrual method taxpayers are not required to include prepayments in gross income when there is certainty as to when performance would occur Artnell Company v CommissionerCourtUnited States Court of Appeals for the Seventh CircuitFull case nameArtnell Company v Commissioner of Internal RevenueDecidedSeptember 19 1968Citation s 400 F 2d 981 68 2 USTC CCH 9593Case historyPrior history48 T C 411 1967 Subsequent historyOn remand T C Memo 1970 85Court membershipJudge s sittingRoger Kiley Luther Merritt Swygert Thomas E FairchildCase opinionsMajorityFairchild joined by a unanimous courtLaws appliedInternal Revenue Code Contents 1 Facts 2 Issue 3 Holding 4 Rationale 5 References 6 External linksFacts editThe petitioner an accrual method taxpayer operated the Chicago White Sox professional baseball franchise using a fiscal year for federal income tax purposes During the 1962 taxable year the club sold single and season tickets to games to be played during the 1963 taxable year The petitioner failed to report income from the sales on its 1962 return and instead reported the receipts as income in 1963 The petitioner s decision to include income from its ticket sales in 1963 rather than 1962 was part of their practice of reporting income from ticket sales as the corresponding games were played The Commissioner argued that in light of Schlude v Commissioner 2 the income should have been reported in the year in which the payment was received the 1962 taxable year Issue editMust the taxpayer include in gross income for 1962 the sale of proceeds received from tickets allocable to games to be played in 1963 Holding editNo Despite the general rule that requires accrual method taxpayers to include advance payments in the year of receipt the court carved out a narrow exception for taxpayers such as the petitioners who are able to prove that services will be performed on fixed dates in one or more subsequent taxable years Rationale editGenerally accrual method taxpayers include income in taxable year it is earned rather than when it is received However the Supreme Court trilogy 3 ending with Schlude 2 required inclusion of prepayments in gross income because of the uncertainties as to when or if performance would occur The court distinguished the facts of Artnell from this holding and found that the uncertainties present in previous cases that required the inclusion of advance payments in the year of receipt were not present The Court found that the deferred income was attributable to games that were intended to be played on a fixed schedule and that notwithstanding rain delays there was certainty about when services would be performed The court reasoned that there are some situations where deferral will so clearly reflect income that the IRS abuses its discretion when it refuses to permit deferral References edit Artnell Company v Commissioner 400 F 2d 981 7th Cir 1968 a b c Schlude v Commissioner 372 U S 128 1963 American Automobile Ass n v United States 367 U S 687 1961 Samuel A Donaldson Federal Income Taxation of Individuals 399 2005 External links editText of Artnell Company v Commissioner 400 F 2d 981 7th Cir 1968 is available from CourtListener Justia OpenJurist Google Scholar nbsp This article relating to case law in the United States or its constituent jurisdictions is a stub You can help Wikipedia by expanding it vte nbsp This tax related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Artnell Company v Commissioner amp oldid 1175138627, wikipedia, wiki, book, books, library,
