Artnell Co. v. Commissioner case brief

Artnell Co. v. Commissioner case brief summary
400 F.2d 981 (7th Cir. 1968)

SYNOPSIS:
Petitioner transferee taxpayer challenged the judgment of the United States Tax Court that upheld respondent Commissioner of Internal Revenue's determination that petitioner had a tax deficiency for the taxable year ending May 31, 1962. Respondent found that the tax deficiency was caused by the transferor's improper treatment of proceeds of advance sales of tickets for baseball games and revenues for related future services as deferred income.

OVERVIEW:
-In 1962 petitioner transferee taxpayer purchased a baseball team that pre-sold season tickets for baseball games, received revenues for broadcasting and televising future games, and sold season parking books.
-On May 31, 1962, petitioner acquired all the stock of the baseball team and filed a tax return for the baseball team as a transferee taxpayer that did not include the deferred unearned income as gross income.

HOLDING:
The tax court affirmed respondent Commissioner of Internal Revenue's determination that found that petitioner had a tax deficiency because the tax return improperly did not include the deferred unearned income as gross income.

ANALYSIS:
-The court stated that the main question was whether respondent had to treat prepayments for services as income when received or whether such treatment was properly deferred by the baseball team as an accrual basis taxpayer until the games were played and other services rendered.
-The court held that the tax court erred in deciding that the revenues were income when received because the tax court failed to determine whether the baseball team's method of accounting clearly reflected its income when it transferred the team to petitioner.

OUTCOME: The court reversed the tax court's judgment that determined that petitioner transferee taxpayer had a tax deficiency for the taxable year ending May 31, 1962, based upon the transferor's improper treatment of proceeds of advance sales of tickets for baseball games and revenues for related future services as deferred income. The court remanded because the tax court did not determine whether the tax return clearly reflected the transferor's income.


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