Hagen Advertising Displays, Inc. v. C.I.R

Full title: HAGEN ADVERTISING DISPLAYS, INC., an Ohio corporation, Petitioner, v…

Court: United States Court of Appeals, Sixth Circuit

Case no: 18015.

Date published: Mar 3, 1969


Hagen Advertising Displays, Inc., a manufacturer of advertising signs, received advance payments from customers for merchandise under blanket orders. These payments were sometimes received prior to the completion or delivery of the signs. Until 1961, these advance payments were kept in a separate bank account, but later were mingled with other receipts and used for operating expenses.


The central issue is whether an accrual-basis taxpayer must report unconditional advance payments for merchandise as income in the year of receipt or if they can defer reporting until the merchandise is delivered.


The court affirmed the decision of the Tax Court, holding that at least a portion of the advance payments constituted gross income in the year of their receipt. The taxpayer’s method of deferring inclusion of the advance payments until delivery was not permissible. The court rejected the taxpayer’s argument that they couldn’t determine the cost of goods sold until delivery, stating that the taxpayer had not made any attempt to estimate these costs and therefore couldn’t complain about the consequences of its failure to do so.

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