United States v. Transamerica Corporation, a Corporation

Three Transamerica subsidiaries filed separate income tax returns for 1953. The returns were prepared on a cash basis, and therefore omitted certain income which accrued to the taxpayers in 1953 but was not actually received until 1954. The income of the three subsidiaries for 1954 was reported in a consolidated return filed on behalf of Transamerica and approximately seventy of its subsidiaries. The consolidated return was prepared on an accrual basis, and therefore the income in question was again omitted because though received in 1954 it had accrued in 1953. The Commissioner of Internal Revenue thought the omitted income should have been included in the consolidated return, and assessed a deficiency. Transamerica paid, and sued for refund in the district court.

The government claims the deficiency assessment was authorized by section 481 (a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 481 (a) which provides as follows: “In computing the taxpayer’s taxable income for any taxable year * * * (1) if such computation is under a method of accounting different from the method under which the taxpayer’s taxable income for the preceding taxable year was computed, then (2)…