Mayfair Minerals, Inc. v. CIR
| Citation | 456 F.2d 622 |
| Decision Date | 07 March 1972 |
| Docket Number | No. 71-2634.,71-2634. |
| Parties | MAYFAIR MINERALS, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
R. B. Cannon, Ft. Worth, Tex., for petitioner-appellant.
Scott P. Crampton, Asst. Atty. Gen., Tax Div., U. S. Dept. of Justice, K. Martin Worthy, Chief Counsel, Edward D. Robertson, James H. Bozarth, Attys., I. R. S., Fred B. Ugast, Acting Asst. Atty. Gen., Meyer Rothwacks, Bennet N. Hollander, Attys., Tax Div., Dept. of Justice, Washington, D. C., for respondent-appellee.
Before BELL, DYER and CLARK, Circuit Judges.
The Commissioner of Internal Revenue determined that the amount which taxpayer improperly accrued and deducted, but did not pay in the years 1957 through 1960 as current refunds to its customer, represented taxable income in 1961 when the liability for making the refunds was terminated by an order of the Federal Power Commission. The Tax Court upheld the Commissioner's determination and rejected taxpayer's contention that it could only realize income in the years 1957 through 1960, when it improperly took the deductions for contingent refunds, and that since the statute of limitations had run with respect to those years, it owed no tax.1 We affirm.
When an accrual basis taxpayer accrues an expense and offsets it against taxable income, and subsequently the expense is not paid, the amount of the prior deduction must be restored to income in the year the liability is extinguished. Rothensies v. Electric Storage Battery Co., 1946, 329 U.S. 296, 67 S.Ct. 271, 91 L.Ed. 296; Merchants Nat. Bank v. Commissioner of Internal Revenue, 5 Cir. 1952, 199 F.2d 657; cf. Section 111(a) of the Internal Revenue Code of 1954. Taxpayer, having received the prior tax benefits from the accrued deductions, realized income in 1961. Bear Manufacturing Co. v. United States, 7 Cir. 1970, 430 F.2d 152, cert. denied 400 U.S. 1021, 91 S.Ct. 583, 27 L.Ed.2d 632.
Taxpayer contends that both it and the Commissioner had knowledge during the years 1957 through 1960 that the liability for making refunds to taxpayer's customer was contingent and disputed by taxpayer and that the improper treatment of it as a valid business deduction in each of those years was a mutual mistake of law by both parties and thus taxpayer did not realize taxable income upon the elimination of the contingent liabilities in 1961. This argument fails for lack of support in the record....
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