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Encyclopedia Britannica v. Commissioner

United States Court of Appeals for the Seventh Circuit
685 F.2d 212 (1982)


Encyclopedia Britannica (Britannica) (plaintiff) decided to publish a book entitled The Dictionary of Natural Sciences. Ordinarily, Britannica would research, author, edit, and publish the book, as it was in the business of doing so. However, Britannica was short-staffed and hired David-Stewart Publishing Company (David-Stewart) to prepare the manuscript under the supervision of Britannica’s editorial staff. Britannica paid David-Stewart an advance against the royalties that Britannica expected to receive on the book. On its federal tax return, Britannica deducted the advance payment to David-Stewart as a business expense. The federal tax commissioner (commissioner) (defendant) disallowed the deduction and assessed deficiencies against Britannica. Britannica petitioned the United States Tax Court for a redetermination. The tax court entered judgment in favor of Britannica, and the commissioner appealed to the United States Court of Appeals for the Seventh Circuit.

Rule of Law


Holding and Reasoning (Posner, J.)

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