United States v. General Dynamics Corp.

481 U. S. 239

April 22, 1987

General Dynamics reimbursed employees for certain medical expenses, provided that they filed a certain form requesting such reimbursement, and that the request was judged valid under company policy. On its 1972 tax return, General Dynamics deducted all reimbursement claims filed during that year – even ones that they had not formally judged valid by December 31. The IRS objected under the “all events” doctrine, which said that expenses could not be deducted until all events required to assure liability had taken place. Because company judgment of claim validity had not occurred for some claims, the IRS said they could not be deducted.

Marshall wrote for the Court, which ruled 6-3 that the IRS had the correct interpretation. In this case, an employee could easily forget to file the correct paperwork, or claim an expense they could not be reimbursed for. Thus, merely because employees had received medical treatment, the company had no certain ground to know the total extent of its financial liability by December 31. Thus, all events required to assure liability had not yet occurred by the end of 1972.

O’Connor wrote a dissent, and was joined by Blackmun and Stevens. She argued that in previous cases, the Court had not adhered to such a strict interpretation of the “all events” doctrine, and that the slight possibility of overstating true liabilities did not justify treating all unprocessed medical treatment claims as presumptively non-deductible. Her analysis of the precedents looks pretty convincing to me. Perhaps the Court wanted a bright line rule. If so, they should have had the intellectual honesty to overrule the precedents O’Connor cites.

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