Wilkins Pontiac v. Commissioner of Internal Revenue, Commissioner of Internal Revenue v. Wilkins Pontiac

Wilkins Pontiac, engaged in the operation of an automobile dealership in Van Nuys, California, has petitioned this court to review a decision of the Tax Court determining a deficiency in federal income tax for the year 1955.

In the course of its business, petitioner sold automobiles and received conditional sales contracts covering the balance due. Petitioner assigned these contracts to GMAC for the full face value without discount and guaranteed payment of the full amount due under the contracts. Petitioner since 1947 has maintained a reserve for losses sustained by virtue of its obligations as guarantor. At the end of each calendar year a credit has been made to this reserve and the amount of this credit has been deducted each year on its corporation income tax return. There is no issue as to the reasonableness of the 1955 additions to reserve. The sole issue presented by this petition is whether reasonable additions to this reserve may be deducted under § 166 of the Internal Revenue Code of 1954, 26 U.S.C. § 166 . The Tax Court has held that such additions are not deductible, 34 T.C. 1065 .

It is conceded that under Putnam v. Commissioner, 1956, 352 U.S. 82 , 77 S.Ct. 175 , 1…