Putoma Corp. v. Commissioner
United States Tax Court
Individual petitioners Hunt and Purselley each owned 50 percent of the stock of petitioner corporations Putoma and Pro-Mac. Individual petitioners were also salaried employees of the two corporations. In 1970, Hunt and Purselley, cash basis taxpayers, canceled about $ 260,000 that petitioner corporations owed them for accrued but unpaid salaries and interest which the corporations had previously deducted.
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Individual petitioners Hunt and Purselley each owned 50 percent of the stock of petitioner corporations Putoma and Pro-Mac. Individual petitioners were also salaried employees of the two corporations. In 1970, Hunt and Purselley, cash basis taxpayers, canceled about $ 260,000 that petitioner corporations owed them for accrued but unpaid salaries and interest which the corporations had previously deducted. Held, petitioner corporations' obligation for accrued but unpaid compensation was conditional and not properly accruable during the years in question. Held, further, cancellation of the…
1DissentSimpson, J.
In my judgment, the majority’s conclusion with respect to the second issue violates fundamental principles of the tax law and is not required by the decisions of this or other courts. Because it used the accrual method of accounting, Putoma was allowed to deduct the interest payments when it became obligated to make them, and such deductions reduced its tax liability. Even though it never made such payments and the obligation to make them was ultimately extinguished, the majority’s conclusion would allow Putoma to retain such tax benefit.
The objective of tax accounting is to compute, on an…
2Cases cited39 opinions
- Dobson v. CommissionerSupreme Court of the United States · 1944
- Burnet v. Sanford & Brooks Co.Supreme Court of the United States · 1931
- United States v. Kirby Lumber CoSupreme Court of the United States · 1931
- Maryland Casualty Co. v. United StatesSupreme Court of the United States · 1920
- Commissioner v. JacobsonSupreme Court of the United States · 1949
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