Schlude v. Commissioner

The Schludes (plaintiffs) ran a dance-studio franchise letting students pay tuition either upfront or in installments due only as lessons were completed, sometimes leaving tuition unpaid for a year or more, while the Schludes immediately deducted franchise fees owed to the parent company as soon as students enrolled. Because the Schludes used the accrual method, they didn't count unpaid installment tuition as gross income until payments actually came due, but the Commissioner of Internal Revenue (Commissioner) (defendant) determined that unpaid tuition installments were taxable in the year the student signed the contract, a position the tax court and, eventually after remand, the Eighth Circuit upheld.