United States v. General Dynamics

General Dynamics Corporation (plaintiff), an accrual-basis taxpayer, was legally obligated to cover employees' medical expenses, though many employees did not file reimbursement claims until after the tax year ended. In 1972, General Dynamics estimated the payments it would eventually owe for that year's medical services, set up a reserve fund to cover the estimate, and deducted that amount from its gross income. The IRS Commissioner (defendant) disallowed the deduction. The Claims Court granted General Dynamics a refund, reasoning the company had already incurred the liability in the current tax year, and the Federal Circuit affirmed.