American Express Co. v. United States

American Express Company (plaintiff) issued charge cards in exchange for annual fees. A cardholder was billed for and paid the annual fee as a lump sum, entitling the cardholder to coverage for 12 months. As an accrual-method taxpayer, American Express reported income from any such fee in the taxable year the fee was billed, even if the coverage period extended well into the next taxable year. The Internal Revenue Service (IRS) issued Revenue Procedure 71-21, which allowed, under certain conditions, accrual-method taxpayers to defer the inclusion in taxable income of any payments received in one taxable year for services to be performed in the next taxable year if those services would be performed by the end of that next taxable year. Revenue Procedure 71-21 did not specify whether the extension of credit was considered to be a service for its purposes. Citing Revenue Procedure 71-21, American Express sought permission from the IRS to modify how it reported annual-fee payments in its taxable income. Specifically, American Express sought to include one-twelfth of each fee payment per month starting in the month the fee was billed. The IRS determined that the fees represented payments for the ability to make purchases on credit, which was not a service for the purposes of Revenue Procedure 71-21 but was instead akin to a property right. Accordingly, the IRS rejected American Express’s request. American Express filed a claim for the refund it would have been due under the 12-month, fee-inclusion scheme, which the IRS summarily denied. American Express then sued the government (defendant) for the refund in the Court of Federal Claims. The Court of Federal Claims deferred to the IRS’s interpretation of Revenue Procedure 71-21 and issued summary judgment in the IRS’s favor. American Express appealed.