Clifton Manufacturing Co. v. Commissioner
United States Court of Appeals for the Fourth Circuit
137 F.2d 290 (1943)
Clifton Manufacturing (plaintiff), an accrual-method taxpayer, was owed about $400,000 in interest by Hunter Manufacturing, which went into receivership; Clifton reasonably doubted in 1934 and 1935 that it would ever collect that interest and didn't report it as income those years. Once Hunter's solvency was reestablished in 1936, Clifton actually received the accrued 1934 interest payment in 1937 but still never reported it. The Commissioner (defendant) assessed a tax deficiency for 1937, the Tax Court agreed with the Commissioner, and Clifton appealed.
Whether, under the accrual method of accounting, a federal taxpayer who does not accrue a debt because of reasonable doubt must accrue it in the year he becomes certain to recover the debt.