Appeal of Musselman , 1 B.T.A. 41 ( 1924 )

opinion.

Smith :

The taxpayer kept his books of account for the year 1918 upon an accrual basis, and his individual return for 1918 was made upon the same basis. Section 212 of the Revenue Act of 1918 provides in part as follows:

(a) That in the ease of an individual the term “net income” means the gross income as defined in section 213, less the deductions allowed by section 214.

(b) The net income shall be computed upon the basis of the taxpayer’s annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. * * *

Section 214 of the Revenue Act of 1918 provides in part:

(a) That in computing net income there shall be allowed as deductions:

(11) Contributions or gifts made within the taxable year * * *.

In the instant case, the Commissioner has not impugned the correctness of the taxpayer’s return made upon the basis of the books of account kept upon an accrual basis. He has, however, disallowed the deductions of the contributions to the United Charities of Big-lerville, Pa., and to the Mennonite Board of Missions and Charities upon the ground that they were not paid in cash and therefore not “made” within the meaning of section 214(a) (11) of the Revenue Act of 1918. The position of the Commissioner is simply that a contribution is not “ made ” until there is an actual delivery of the contribution to the person who is to receive it.

The Board is of the opinion that it was not the intention of Congress to differentiate sharply between the payment of expenses and the payment of contributions in determining their deduction from gross income in a tax return made upon an' accrual basis. If a liability to make a contribution has actually attached, there appears to be no good reason for holding that it may not be deducted from gross income the same as an expense item which has actually accrued. The word “ made ” does not necessarily connote payment in cash. In the instant case the taxpayer had become legally bound to contribute $375 to the United Charities of Biglerville, Pa., during the month of November, 1918, and the due date for payment arrived prior to the close of the taxable year. The consideration for the agreement made by the taxpayer with the United Charities of Biglerville was the subscriptions ox other citizens to the amount of $375. The contribution is a legal deduction from gross income in the taxpayer’s return for 1918 made upon an accrual basis.

From the evidence of record it does not appear that the taxpayer’s liability for the payment of $405 for a multigraph machine for the Mennonite Board of Missions and Charities had actually accrued during the year 1918. At December 31, 1918, there existed a promise on the part of the taxpayer to make a contribution, but such promise was without legal consideration, and there is nothing to show, as in the case of the contribution to the United Charities of Biglerville, that liability to make payment actually accrued during 1918. The Board is therefore of the opinion that this item was not a legal deduction from the taxpayer’s gross income of 1918.