Federated Department Stores, Inc. v. Commissioner

Summary

The Sixth Circuit considers two federal income-tax issues involving Federated Department Stores, Inc. First, it holds that the taxpayer’s pre-1964 financing arrangements differed materially from its 1964 sale of accounts receivable, so no accounting-method change under Internal Revenue Code § 481 occurred. Second, it affirms that payments from Sharpstown Realty Company to induce Federated to build and operate a department store were nontaxable contributions to capital under § 118.

Holdings

1. The pre-1964 transactions were materially different from the 1964 sale of accounts receivable and therefore did not constitute a change of accounting under section 481(a).
2. Sharpstown's payments to Federated were contributions to capital and were therefore excludable from Federated's gross income under section 118.

Questions Presented

1. Whether Federated's pre-1964 bank financing arrangements were sufficiently similar to its 1964 sale of accounts receivable to constitute a change in accounting method requiring adjustments under Internal Revenue Code section 481(a).
2. Whether payments made by Sharpstown Realty Company to induce Federated to construct and operate a department store constituted contributions to Federated's capital excludable from gross income under Internal Revenue Code section 118.

Disposition

affirmed