The opinion
MuRBOok,
dissenting: The prevailing opinion recognizes that this is not a case under section 41 involving an improper system of accounting for and reporting income. It also recognizes that the amounts in controversy were not actually accrued and could not have been accrued during the taxable year because no events had occurred during that year fixing a liability or determining the amount of any liability. The opinion is based entirely upon the proposition that the peculiar facts in this case require a deduction under section 43 in order to clearly reflect income, even though the item was not paid, accrued, or incurred during 1935, and even though, in all other respects, the accounting method of the taxpayer was entirely satisfactory.
The Board apparently finds that the item is deductible under section 23(a), which allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” This item was not paid or incurred during the taxable year. Since it was not an accruable expense of that year, it can not be allowed as a deduction for 1935 unless section 43 applies. The prevailing opinion does not demonstrate to my satisfaction that section 43 applies. The only relation which the item has to 1935 is that it grew out of transactions which occurred in that year. In so far as it was paid in 1937 to retain the good will of customers, it could not be justified under any theory as an ordinary and necessary expense of 1935. The petitioner earned a certain amount in 1935 which it thereafter retained as its own. Although as time went on vendees began to make claims, the petitioner consistently denied *774 liability on those claims and no liability js established. After thus denying liability, and after paying only a part of the sums claimed by the vendees, the petitioner asks for relief under section 48. So far as the evidence shows, the petitioner might never have paid anything to the vendees had it not desired to retain their good will after 1987. I see no justification for relating back to 1935 under section 43 an amount thus paid in 1937. This case presents no exception to the general rule that deductions must be taken only when they are paid, accrued, or incurred in accordance with the accounting system regularly used. Cf. Estate of William H. Block, 39 B.T.A. 338 ; affd., 111 Fed. (2d) 60.
Tyson agrees with this dissent.