Rev. Rul. 62-30

Advice has been requested whether a taxpayer who filed an amended Federal income tax return for the taxable year ended December 31, 1958, after June 22, 1959, the date of the decision in Commissioner v. John R. Hansen, et ux. , 360 U.S. 446, Ct.D. 1838, C.B. 1959-2, 460, correcting his method of reporting dealer reserve income for `his most recent taxable year,' is thereby precluded from making a valid election under section 4 of the subsequently enacted Dealer Reserve Income Adjustment Act of 1960, 74 Stat. 124, C.B. 1960-1, 795.

The taxpayer files his Federal income tax returns on a calendar-year basis and computes his taxable income on the accrual method of accounting, except for the taxable year 1958 and prior years, when the taxpayer reported dealer reserve income when it was actually received.

On June 22, 1959, the Supreme Court of the United States, in the case of John R. Hansen, et ux. , held that amounts retained by finance companies and credited to the reserve accounts of dealers constitute `income to these accrual basis dealers at the time the withheld amounts were entered on the books of the finance companies as liabilities to the dealers.'

On December 7, 1959, the taxpayer filed an amended 1958 tax return and reported the dealer reserve income under the proper method.

On May 13, 1960, the Dealer Reserve Income Adjustment Act of 1960 (hereafter referred to as the Act) was approved. Among other things, the Act provides for installment payment privileges for deficiencies resulting from the change in reporting dealer reserve income for persons to whom the Act applies.

The taxpayer in the instant case filed a timely statement, intended as an election under section 4 of the Act, requesting installment payment privileges with respect to tax deficiencies, plus interest, for the taxable years 1956 and 1957.

Section 2 of the Act provides, in part, as follows:

This Act shall apply to any person who, for his most recent taxable year ending on or before June 22, 1959-

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(2) treated any dealer reserve income, which should have been taken into account (under the accrual method of accounting) for such taxable year, as accruable for a subsequent taxable year, * * *

Section 1.9002-1(b) of the Income Tax Regulations provides, in part, that, in order to be eligible to make any of the elections provided by the Act a taxpayer must have, for his most recent taxable year ending on or before June 22, 1959, treated dealer reserve income which should have been taken into account (under the accrual method of accounting) for such most recent taxable year as accruable for a subsequent taxable year. Thus, the elections provided by the Act are not available to a person who, for his most recent taxable year ending on or before June 22, 1959, reported dealer reserve income under a method proper under the accrual method of accounting.

The specific issue involved is whether the filing of an amended return after the Hansen decision, which corrected the method of reporting dealer reserve income for the `most recent taxable year,' means that the taxpayer `treated' his dealer reserve income on a proper accrual method `for his most recent taxable year ending on or before June 22, 1959.'

The Act was prompted by the decision in the John R. Hansen case, the effect of which would, but for the Act, require all dealers to make a transition to the proper method of reporting dealer reserve income in one taxable year. The `bunching' of dealer reserve income in one year, as a result of that decision, would have worked a hardship on those dealers who, prior thereto, relied on the many lower court decisions which held that the reserves were not accruable until the year of the withdrawal of the reserve. See S. Report No. 1045, Eighty-Sixth Congress, C.B. 1960-1, 826, and 827.

In view of the foregoing, it is clear that the Act was prompted by the Hansen decision and is directed at taxpayers' treatment of dealer reserve income prior to the date of such decision.

Accordingly, it is held that the taxpayer is not precluded from making a valid election under section 4 of the Act by reason of having filed an amended Federal income tax return for the taxable year ended December 31, 1958, resulting in the correction of his method of reporting dealer reserve income.