The opinion
Kern, J., dissenting: I respectfully dissent from the conclusion of the majority. In my opinion the item in question here became properly accruable as income to petitioner not later than in October 1985, when the-Hunter Co. received $1,000,000 from one of its own debtors. It is stipulated that “Thereafter, if not before, the Hunter Company was completely solvent and there was thereafter no reasonable doubt as to the collectibility of any of the debts owed by the Hunter Company.” “An item is not accrued income as a long as there remains a substantial .contingency as to its collectibility.” Paul & Mertons, Federal Income Taxation, par. 11.73. Conversely, it would follow that, when there does not remain a substantial contingency as to its collectibility, an item is accrued income. Petitioner was on the accrual basis of accounting and made its tax returns on that basis. It had entered this item on its books as an account receivable from the Hunter Co. In 1935 the Hunter Co. was completely solvent and there was no doubt as to the collectibility of any account against it. Petitioner included similar interest items in its income tax returns for the fiscal years beginning April 1, 1934, and April 1,1935, and thus indi-pated that it had no doubt in 1935 as to the collectibility of accounts against the Hunter Co. Therefore, when the majority opinion holds that the failure of petitioner to report as income in .1935 the similar interest item here in question payable in the fiscal year beginning April 1, 1933, is “a persuasive indication that even as of that time [1935] petitioner did not view the item as accruable,” it has taken a position which is untenable.
The majority opinion, in speaking of the situation in October 1935, says “If the prospects of collection had improved, they could not be said to have reached the point of absolute certainty, since petitioner had yet to receive the cash in hand” The implication of this statement is that a taxpayer on the accrual basis is obligated to accrue as income only those items whose payment is absolutely certain, and the criterion of absolute certainty is the receipt of cash in hand. This would seem to nullify the whole concept of accrual accountirig as a basis of making income tax returns; unless it is restricted to cases in which a taxpayer on the accrual basis does not report an account receivable as accrued income because there is substantial doubt as to its collectibility and in a later year this doubt is removed, although no cash payment is received. As applied to such a restricted factual field the rule implied by the majority opinion would seem to be that where an item, otherwise properly accruable, is not accrued as income because of the existence of a substantial doubt concerning its collecti-bility, such item thereafter becomes income only when actually paid.
However, the majority opinion carefully points out that it makes no express holding to that effect and that “it may be * * * that when collectibility becomes sufficiently certain, a taxpayer on the accrual basis, who reports the item as income at that time, would be allowed to do so.” In such a situation, the majority opinion suggests the possibility that the taxpayer has an election to treat itself as to the particular item as either on the accrual basis or the cash basis of accounting. I am unable to agree that this possibility exists.
It is my opinion that, when a taxpayer on the accrual basis of accounting-fails to return an item of income, otherwise properly" ac-cruable, because its collectibility is subject to substantial doubt, and in a later year its collectibility becomes free from doubt, it is income properly and necessarily accruable in the later year, and not in an even later year when the item is paid in cash.