335:, the Court held that, under 162(a) of the Code, the accrual-basis employer did not satisfy the "all events" test so as to enable the employer to deduct at the close of 1972 an estimated reserve for the employer's obligation to reimburse employees or their qualified dependents for covered medical expenses incurred but not reported to the employer during the final quarter of 1972, where (1) the last event necessary to fix the employer's liability was the filing of a claim with the employer; (2) the employer had failed to demonstrate that any of the reserve represented claims which had been filed prior to the close of 1972 but not yet processed; (3) the fact that the employer might have been able to make a reasonable estimate of how many claims would be filed for the last quarter of 1972 might justify such a reserve as an appropriate accounting measure, but did not, by itself, warrant a tax deduction; and (4) if the "all events" test permitted deduction of an estimated reserve representing claims that were actually likely but not yet reported, Congress would not have needed to maintain an explicit provision (26 U.S.C. 832(b)(5), 832(c)(4)) that insurance companies could deduct such reserves.
303:, which sustained the deduction and expressed the view that (1) there was no dispute that expenses incurred by the employer in connection with its employee medical-benefit plans were deductible as ordinary and necessary business expenses under 162(a), so that the issue in the case was the timing of the deduction; and (2) deduction of the reimbursement reserve on the 1972 return satisfied the "all events" test, where (a) the fact of the employer's liability was established when a qualified employee or dependent received covered medical services, (b) the subsequent acts of claims filing and processing were ministerial in nature, not conditions precedent to liability, and (c) the employer's aggregate-estimate system for determining the amount of liability was logical and reasonable (6 Cl. Ct 250).
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care which had been received by covered individuals during the last quarter of 1972, but still not paid for by the employer as of
December 31, 1972; (3) calculated the amount of the reserve based upon an estimate of the aggregate liability to be incurred for the period in question; and (4) claimed the estimated reserve as a business expense in an amended 1972 federal income tax return.
260:(26 U.S.C. 162(a)) and Treasury Regulation 1.461-1(a)(2) ( 26 CFR 1.461-1(a)(2)), the "all events" test entitled an accrual-basis taxpayer to a federal income tax business-expense deduction, for the taxable year in which (1) all events had occurred which determined the fact of the taxpayer's liability, and (2) the amount of that liability could be determined with reasonable accuracy.
354:, wrote a dissent chastising the majority for adopting a rigid version of the "all events" that retreated from prior holdings, arguing that the decision will "unnecessarily burden taxpayers by further expanding the difference between tax and business accounting methods without a compelling reason to do so."
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was whether an accrual-basis taxpayer providing medical benefits to its employees could deduct at the close of the taxable year an estimate of its obligation to pay for medical care obtained by employees or their qualified dependents during the final quarter of the year, for claims which had not been
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An accrual-basis employer—a corporation which filed a consolidated federal income tax return with several subsidiaries--(1) reimbursed employees for certain medical expenses of employees and their qualified dependents; (2) established reserve accounts to reflect the employer's liability for medical
136:
Under 162(a) of the
Internal Revenue Code (26 U.S.C. 162(a)) and Treasury Regulation 1.461-1(a)(2) ( 26 CFR 1.461-1(a)(2)), the "all events" test entitled an accrual-basis taxpayer to a federal income tax business-expense deduction, for the taxable year in which (1) all events had occurred which
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for federal tax purposes; its fiscal year was the same as the calendar year. From 1962 until
October 1, 1972, the corporation purchased group-medical insurance for its employees and qualified dependents from two private insurance carriers. Beginning in October 1972, the corporation became a
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self-insurer with regard to its medical care plans. Instead of continuing to purchase insurance from outside carriers, it undertook to pay medical claims out of its own funds, while continuing to employ private carriers to administer the medical care plans.
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The
Internal Revenue Service (IRS) audited appellee corporation's 1972 tax return. The corporation filed an amended return, claiming it was entitled to deduct its reserve as an accrued expense, and seek a refund. The IRS disallowed the deduction.
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The
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affirmed, largely on the basis of the Claims Court opinion.
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United States
Supreme Court cases of the Rehnquist Court
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United States Court of
Appeals for the Federal Circuit
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List of United States Supreme Court cases, volume 481
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93:226; 55 U.S.L.W. 4526; 87-1 U.S. Tax Cas. (
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369:List of United States Supreme Court cases
651:Merchants' Loan & Trust v. Smietanka
542:Stratton's Independence, Ltd. v. Howbert
1035:United States v. General Dynamics Corp.
859:United States v. Safety Car Heating Co.
392:United States v. General Dynamics Corp.
249:United States v. General Dynamics Corp.
65:United States v. General Dynamics Corp.
35:United States v. General Dynamics Corp.
987:Helvering v. Independent Life Ins. Co.
229:O'Connor, joined by Blackmun, Stevens
29:1987 United States Supreme Court case
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1019:Hoover Express Co. v. United States
963:Brushaber v. Union Pacific Railroad
507:Brushaber v. Union Pacific Railroad
1011:Tank Truck Rentals v. Commissioner
971:Burnet v. Sanford & Brooks Co.
800:Commissioner v. Gillette Motor Co.
784:Commissioner v. Glenshaw Glass Co.
768:Helvering v. Northwest Steel Mills
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491:United States Sixteenth Amendment
402:239 (1987) is available from:
515:Stanton v. Baltic Mining Company
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1003:Millinery Corp. v. Commissioner
979:McLaughlin v. Alliance Ins. Co.
728:Burk-Waggoner Assoc. v. Hopkins
1092:1987 in United States case law
776:Crane-Johnson Co. v. Helvering
323:The issue before the Court on
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1054:Bowers v. Kerbaugh-Empire Co.
760:Helvering v. National Grocery
566:Bowers v. Kerbaugh-Empire Co.
643:Rockefeller v. United States
603:Southern Pacific Co. v. Lowe
275:accrual method of accounting
252:, 481 U.S. 239 (1987), is a
18:US v. General Dynamics Corp.
523:Tyee Realty Co. v. Anderson
254:United States Supreme Court
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1027:Cammarano v. United States
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328:reported to the employer.
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659:Miles v. Safe Deposit Co.
273:The corporation used the
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934:Commissioner v. Sullivan
720:Edwards v. Cuba Railroad
635:United States v. Phellis
926:Rutkin v. United States
54:Argued January 13, 1987
942:James v. United States
891:United States v. Davis
574:Moore v. United States
161:William J. Brennan Jr.
56:Decided April 22, 1987
899:Commissioner v. Tufts
883:Crane v. Commissioner
752:Helvering v. Mitchell
691:Koshland v. Helvering
683:Marr v. United States
258:Internal Revenue Code
240:Internal Revenue Code
995:Helvering v. Winmill
319:Opinion of the court
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819:Goodrich v. Edwards
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197:Sandra Day O'Connor
185:Lewis F. Powell Jr.
1046:Diminution of loss
875:Helvering v. Horst
867:Helvering v. Bruun
843:Lucas v. Alexander
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627:Eisner v. Macomber
558:Eisner v. Macomber
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91:L. Ed. 2d
71:Citations
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585:Taxable
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339:Dissent
226:Dissent
131:Holding
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