Commissioner v. Hansen - Oral Argument - April 29, 1959 Page 2

Commissioner v. Hansen

Media for Commissioner v. Hansen

Audio Transcription for Oral Argument - April 30, 1959 in Commissioner v. Hansen

Audio Transcription for Oral Argument - April 29, 1959 in Commissioner v. Hansen

William O. Douglas:

But they -- they are not printed here, are they?

Meyer Rothwacks:

They -- they are not.

They are not.

But they have been so clearly and so often enunciated by this Court and by other courts that we didn't feel it necessary to print that.

We'll be very glad to do it.

This Court said, for example, in the Spring City case.

In that case, this Court will remember that the taxpayer was on the accrual basis.He sold goods on an open account in 1920.

His customer went into bankruptcy in that year.

In 1923 and 1924, he received dividends from the receiver in bankruptcy.

The taxpayer reported his income, in -- in 1923 and 1924, the amounts which he received from the receiver.

This Court said “No.”

This Court said he was required to report the amounts as income in 1920 because keeping accounts and making returns on the accrual basis, this Court said, as distinguished from the cash basis, important that it is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income, and when the right becomes fixed, then the right accrues.

And the second controlling principle in these cases, related somewhat to the accrual accounting principle, is that every taxpayer under our revenue system, regardless of the accounting method that he uses, is required to compute his income and to report his income on the basis of an annual, as distinguished from a transactional, basis.

In other words, the fact that an income producing transaction such as the sale of an automobile or trailer on credit, as in these cases, extends over a period of more than one year, as they did in these cases.

It does not affect the requirement but under our tax system, the computation of the income for tax purposes must show the net result of all of the taxpayer's transactions in a given year rather than the net result of any particular transaction which may extend beyond that period.

Now, the facts in each of the cases in 380, 381 and 512 are of course somewhat different.

But while there are factual differences, we maintain that in their broad significant aspects, they do present a workable common picture which we may use to determine the application of the controlling principles which I have just enunciated.

Now, generally speaking, in these cases, the taxpayers were dealers who sold automobiles or trailers on credit.

They entered into negotiations with their customers.

They arrived at a time before balance with their customers.

They took the contract or the note of the customer which reflected the full-time balance less the amount that was paid in cash or the trade-in value of the car that was offered.

And that was the obligation of the customer, the purchaser, to pay to the dealer.

There's no indication in this record at all, in any of the records in these cases, except to the extent that the finance company may have supplied forms for the convenience of the taxpayers that the finance company participated in any way in the negotiations between the dealer, on the one hand and his customer, on the other, nor was the dealer under any obligation at all to sell his contract or notes either to the finance company to which he actually did sell or to any other finance company.

Now, the fact is, of course, that he did sell the contract.

He did sell the notes under agreements which were either oral or written.

In some instances, the notes were transferred with recourse, in some instances, without.

The contracts vary --

Charles E. Whittaker:

Excuse me.

Meyer Rothwacks:

Yes?

Charles E. Whittaker:

Did I understand you to say, in some instances, they will be transferred without recourse?