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Clifton Manufacturing Co. v. Commissioner

United States Court of Appeals for the Fourth Circuit
137 F.2d 290 (1943)


Hunter Manufacturing & Commission Company (Hunter) owed Clifton Manufacturing Company (Clifton) (plaintiff) almost $400,000. In 1933, Clifton believed that it would only receive about half of this amount due to Hunter’s recent receivership for liquidation, and doubted that it would recover interest on the past due receipts. However, in 1936, Hunter acquired enough money to pay Clifton the interest that had accrued from 1934 in 1937. Clifton used the accrual method of accounting and did not include the 1934 interest as gross income on its 1934, 1935, or 1937 tax returns. The commissioner of internal revenue (commissioner) (defendant) determined a deficiency in Clifton’s taxes for 1937. Clifton petitioned the United States Tax Court for a redetermination. The tax court ruled for the commissioner, holding that the 1934 interest was taxable in 1937. Clifton appealed.

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