SCHLUDE V. COMMISSIONER, 372 U. S. 128 (1963)

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U.S. Supreme Court

Schlude v. Commissioner, 372 U.S. 128 (1963)

Schlude v. Commissioner of Internal Revenue

No. 80

Argued December 10, 1962

Decided February 18, 1963

372 U.S. 128


Petitioners, who operated dance studios, kept their books and made their income tax returns on a fiscal year accrual basis. They obtained from students contracts for dancing lessons over periods of years, to be paid for partly in cash and partly in installments, sometimes represented by negotiable notes which were discounted at banks. For the years 1952, 1953 and 1954, they reported as gross income only that portion of the advance payments received in cash and the amounts of notes and contracts executed during the respective years which corresponded with the number of hours taught. The balance was reserved for accrual in future years when additional lessons were taught, waived or forfeited.

Held: it was proper for the Commissioner, in the exercise of his discretion under § 41 of the Internal Revenue Code of 1939 and § 446(b) of the Internal Revenue Code of 1954, to reject petitioners' accounting system as not clearly reflecting income, and to include as income in a particular year advance payments by way of cash, negotiable notes and contract installments falling due but remaining unpaid during that year. America Automobile Association v. United States, 367 U. S. 687. Pp. 372 U. S. 129-137.

296 F.2d 721 affirmed in part, reversed in part, and remanded.

Page 372 U. S. 129

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