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Hallmark Cards, Inc. v. Commissioner

United States Tax Court
90 T.C. 26 (1988)


Facts

Hallmark Cards, Inc. (plaintiff) used the accrual method of accounting. Hallmark often shipped holiday-themed merchandise to its customers well in advance of holidays. However, merchants did not wish to receive Valentine’s Day merchandise before the end of the preceding calendar year due to the presence of Christmas merchandise already as well as yearend-inventory implications. As a result, Hallmark modified its sales and shipping documents: Hallmark shipped Valentine’s Day merchandise before the end of the preceding calendar year, but provided in the sales documents that title and risk of loss would not pass to the merchants until January 1. Consequently, Hallmark deferred reporting of its income related to the sales of the Valentine’s Day merchandise until the following year. The Internal Revenue Service (IRS) (defendant) assessed a deficiency for this practice, determining that Hallmark must report the income in the year in which it shipped the merchandise. Hallmark appealed

Rule of Law

Issue

Holding and Reasoning (Körner, J.)

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