Artnell V. Commissioner - Rationale

Rationale

Generally, accrual method taxpayers include income in taxable year it is earned, rather than when it is received. However, the Supreme Court trilogy ending with Schlude required inclusion of prepayments in gross income because of the uncertainties as to when, or if, performance would occur. The court distinguished the facts of Artnell from this holding and found that the uncertainties present in previous cases that required the inclusion of advance payments in the year of receipt were not present. The Court found that the deferred income was attributable to games that were intended to be played on a fixed schedule and that notwithstanding rain delays there was certainty about when services would be performed. The court reasoned that there are some situations where deferral will so clearly reflect income, that the IRS abuses its discretion when it refuses to permit deferral.