United States v. Consolidated Edison Co. of New York, Inc.

Consolidated Edison Company of New York, Inc. (Edison) (plaintiff) owned many real-estate properties from 1946 to 1951. Each year, the State of New York would perform a valuation of the properties and assess property taxes accordingly. Edison disagreed with the valuation of its properties and filed a protest with the state, which was its only option to contest the valuation. Under state law, Edison’s protest did not stay the tax payment. To prevent its properties from foreclosure, Edison paid the full amount of the tax, despite believing that the state’s valuation was 15 percent too high. As a result of the protest process, the state determined that the valuation was 5 percent too high, and issued a refund to Edison. Edison used the accrual method of accounting, which allowed it to recognize all expenditures and gains at the time the right to receipt or obligation to pay existed. Edison deducted the full tax payment on its tax returns for 1951. The federal tax rate was higher in 1951 than in the prior five years. Edison believed that it had not accrued 15 percent of its property taxes while the protest was still pending. However, the Internal Revenue Service denied Edison a tax refund for 1951. To recover the overpaid taxes, Edison brought suit against the United States government (government) (defendant) in the United States District Court for the Southern District of New York. The district court ruled in favor of the government, and Edison appealed. The United States Court of Appeals for the Second Circuit reversed. The United States Supreme Court granted certiorari.