Arthur v. Morgan and Dorothy O. Morgan v. Commissioner of Internal Revenue

This is an appeal from the Tax Court ( 26 U.S.C. § 7482 ) where the determination of a deficiency made by the Commissioner of Internal Revenue for 1950 was upheld on review (Int.Rev.Code of 1939, § 272, 26 U.S.C.A. § 272 ).

Taxpayer Arthur V. Morgan was a member of a partnership engaged in the used car business which kept its books on an accrual basis and sold large numbers of cars under conditional sales contracts. These contracts assigned to a bank provided that the purchasers agreed to pay the “Contract Balance” (which included the “time price differential” made up of interest and finance charges) in equal successive monthly installments. Upon assignment the bank would pay the total “unpaid cash purchase price” to petitioners and pay the motor vehicle tax either to petitioners or the Department of Motor Vehicles (depending upon whether the partnership or the bank cleared title to the car). The time price differential differed in amount because of difference in charges to the purchaser. It was allocated at the time of assignment between the bank’s unearned discount, the bank’s earned discount, and the dealer’s reserve account. During the year 1950 the credits to the dealer’s…