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U.S. Supreme Court

American Automobile Ass'n v. United States, 367 U.S. 687 (1961)

American Automobile Association v. United States

No. 288

Argued April 17, 1961

Decided June 19, 1961

367 U.S. 687


Petitioner keeps its books and makes its income tax returns on a calendar year accrual basis. For the years 1952 and 1953, it reported as gross income only that portion of the total prepaid annual membership dues actually received or collected in the calendar year which ratably corresponded with the number of membership months covered by those dues occurring during the same taxable year. The balance was reserved for ratable monthly accrual over the remaining membership periods in the following calendar year, as deferred or unearned income reflecting the estimated expense of service to its members. In the exercise of his discretion under § 41 of the Internal Revenue Code of 1939, the Commissioner determined not to accept petitioner's accounting system, and assessed deficiencies resulting mainly from petitioner's failure to include in its gross income for each year the total amount of dues received during that year.

Held: the Commissioner's action is sustained. Pp. 367 U. S. 688-698.

(a) The accounting method used by petitioner may present an accurate image of the total financial structure, but it fails to respect the criteria of annual tax accounting, and it may be rejected by the Commissioner. Pp. 367 U. S. 690-692.

(b) A different conclusion is not required by the finding of the Court of Claims that petitioner's method of accounting had been used regularly by it since 1931, and was in accord with generally accepted commercial accounting principles and practices. Pp. 367 U. S. 692-694.

(c) The conclusion here reached is confirmed by the facts that Congress introduced into the Internal Revenue Code of 1954 provisions which specifically permitted essentially the same practice as that employed by petitioner; it repealed those provisions retroactively one year later; and, in 1958, it rejected a proposed amendment which would have specifically permitted this practice with respect to prepaid automobile association membership dues. Pp. 367 U. S. 694-698.

___ Ct. Cl. ___, 181 F. Supp. 255, affirmed.

Page 367 U. S. 688

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