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BROWN V. HELVERING, 291 U. S. 193 (1934)

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U.S. Supreme Court

Brown v. Helvering, 291 U.S. 193 (1934)

Brown v. Helvering

No. 187

Argued December 13, 14, 1933

Decided January 15, 1934

291 U.S. 193


A general agent of fire insurance companies received "overriding commissions" on the business written each year, subject however to the contingent liability that, when any of the policies was cancelled before its term had run, a part of the commission thereon, proportionate to the premium money repaid the policyholder, must be charged against the agent in favor of the company. In his accounts and income tax returns involved in this case, he deducted from the accrued commissions of each year a sum entered in a reserve account to represent that part of them which, according to the experience of earlier years, would be returnable because of cancellations.

Held: chanroblesvirtualawlibrary

Page 291 U. S. 194

1. That the deduction were not "expenses paid or incurred" in the taxable years. Section 214, Revenue Acts of 1921, 1924, and 1926. P. 291 U. S. 198.

2. Although a liability accrued may be treated as an expense incurred, a contingent liability is not an accrued liability unless so designated specifically by statute. P. 291 U. S. 200.

3. The reserve set up is not akin to the reserves required of insurance companies, nor is it to be classed with the reserves voluntarily established as a matter of conservative accounting which are specifically authorized by the Revenue Acts. P. 291 U. S. 201.

4. Under § 212(b), it was within the discretion of the Commissioner to require the taxpayer to adhere to a method of accounting previously used in the business deduction of the return commissions accrued during the tax year from the "overriding commissions" accrued during that year if, in the Commissioner's opinion, the older method would more clearly reflect the net income. P. 291 U. S. 202.

5. It was likewise within the province of the Commissioner to reject an alternative method proposed by the taxpayer -- viz, a prorating of the overriding commissions over the lives of the policies and deduction of return commissions as they accrued. P. 291 U. S. 203.

63 F.2d 66 affirmed.

Certiorari, 290 U.S. 607, to review the affirmance, on appeal, of an order of the Board of Tax Appeals (22 B.T.A. 678), sustaining three deficiency assessments of income taxes.

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