Opinion of the Court.

312 U.S.

ferred to in § 182 does not mean available in cash for payment to the partner. It means only that gains attributable to the partner's interest in the firm were earned. Partnership returns may be made on a different basis of computation than those of the members.12 Thus because of the partnership arrangement and agreement, the value of the unfinished business must be determined as of the date of death. Further, the result, under the assumption here that it is an accrual, is a distributive share and is to be carried into the partner's return. Respondent's argument that the requirement of § 182, including all distributable shares in the partner's return, puts all partnership returns on the accrual basis fails to give weight to the fact that a partnership on the cash method shows only cash receipts as a partner's distributive share. The requirement to account for a distributive share, although the share is actually not distributed, is not a requirement to account for partnership income on an accrual basis. Since a partner's return of his partnership earnings would vary, dependent upon whether the partnership used the cash or accrual method of accounting, we do not agree with respondent's suggestion.

We turn now to whether this valuation of the decedent's interest in the partnership is an accrual of income which must be reflected in the income tax or a valuation of assets only reflected in estate or inheritance reports. This partnership uses the cash receipts method. There was no customary accounting system to determine whether the value of services rendered should be accrued before payment. Under such circumstances, we are of the view that items of partnership income properly accrued should be included in the income tax return of the deceased partner. This will cause the accrued items of "Truman v. United States, 4 F. Supp. 447; §§ 183 and 187.

partnership returns to be included in the income tax return of a deceased partner, whether the partnership method is accrual or cash.13 Furthermore, an accrual of compensation for the unfinished business seems sound in view of the purpose of the enactment of § 42.

The meaning of "amounts accrued up to the date of his death" is clear as to fixed rent, interest, salary or wages for personal services and other similar income which may readily be attributed to a particular period. There are like deductions such as interest and taxes.14 The uncertainty as to the meaning arises in the field of personal service from items which cannot be accounted for on a basis of successive equal units of time. Examples of the difficulty are the value, prior to a successful result, of services rendered on a contingent basis, done on a quantum meruit whether that would or would not vary with the outcome, or exploratory or preliminary steps looking towards final accomplishment.

While "accrue" and its various derivatives are not new to the nomenclature of accounting or taxation, its use has not sufficed to build it into a word of art with a definite connotation when employed in describing items of gross income. The 1913 Act 15 put the taxpayer on an actual cash receipt and disbursement basis. The 1916 Act 16 gave the taxpayer the option of reporting on either the cash or accrual basis and the 1918 Act limited the return to the method of accounting regularly employed unless otherwise directed by the Commissioner of Internal Revenue." A similar provision covers the year

13

The inevitable variations of "accrued" which depend upon established accounting practice do not destroy the principle.

"Cf. United States v. Anderson, 269 U. S. 422.

here in question.18 That the meaning to be attributed to "accrued" as used in § 42 is to be gathered from its surroundings is emphasized by § 48, Definitions, which

says:

"(c) Paid, Incurred, Accrued.-The terms 'paid or incurred' and 'paid or accrued' shall be construed according to the method of accounting upon the basis of which the net income is computed under this part." 19

919

It is to be noted that no change was made by the 1934 Act in the § 48 definition of "accrued." 20 Yet, it is obvious that the definition is inapplicable since a taxpayer on a cash basis cannot have a "method of accounting" by which the meaning of accrual is fixed. Consequently it is beside the point to give weight to provisions of the regulations or accounting practices which do not recognize accruals until a determination of compensation.21 Such provisions when applied bring the income into succeeding years. It has been frequently said, and correctly, that § 42 was aimed at putting the cash receipt taxpayer on the accrual basis.22 But that statement does not answer the meaning of accrual in this section. Accounts kept consistently on a basis other than cash receipts might treat accruals quite differently from a method designed to reflect the earned income of a cash receipt taxpayer. Accruals here are to be construed in furtherance of the intent of Congress to cover into income the assets of decedents, earned during their life

19 Cf. Ernest M. Bull, Exec., 7 B. T. A. 993, 995.

21

22

Cf. § 48 (c) of the Revenue Act of 1932, 47 Stat. 188.

Regulation 86, Art. 42-1.

Lillian O. Fehrman, Exec., 38 B. T. A. 37; Estate of Wilton J. Lambert, 40 B. T. A. 802, 806; Estate of G. Percy McGlue, 41 B. T. A. 1186, 1193; Enright v. Commissioner, 112 F. 2d 919, this case below.

and unreported as income, which on a cash return, would appear in the estate returns. Congress sought a fair reflection of income.23

24

Accrued income obviously connotes more than interest. In United States v. American Can Co., this Court approved an accrual basis where "pecuniary obligations to or by the Company were treated as if discharged when incurred." In United States v. Anderson 25 accruals of fixed annual charges, e. g., taxes payable in another year, were permitted against determinable gross income. "Keeping accounts and making returns on the accrual basis, as distinguished from the cash basis, import that it is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income." 26 The completion of the work in progress was necessary to fix the amount due but the right to payment for work ordinarily arises on partial performance. Accrued income under § 42 for uncompleted operations includes the value of the services rendered by the decedent, capable of approximate valuation, whether based on the agreed compensation or on quantum meruit. The requirement of valuation comprehends the elements of collectibility." The items here meet these tests and are subject to accrual.

23

"It is immaterial that all possibility of escaping an income tax is not barred, as for instance the increased value of asset items in an estate return. Act, 113 (a) (5) ". . . the entire field of proper legislation [need not] be covered by a single enactment." Rosenthal v. New York, 226 U. S. 260, 271; cf. Keokee Coke Co. v. Taylor, 234 U. S. 224, 227.

26 Spring City Co. v. Commissioner, 292 U. S. 182, 184; Guaranty Trust Co. v. Commissioner, 303 U. S. 493, 498.

"Cf. Parlin, Accruals to Date of Death, 87 U. of Pa. L. Rev. 294, 301; Farrand & Farrand, Treatment of Accrued Items on Death, 13 So. Cal. L. Rev. 431.

Opinion of the Court.

312 U.S.

The judgment of the Circuit Court of Appeals is reversed and the decision of the Board of Tax Appeals affirmed.

Reversed.

PFAFF ET AL., EXECUTORS, v. COMMISSIONER OF INTERNAL REVENUE,

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

No. 479. Argued March 4, 5, 1941.-Decided March 31, 1941.

Decided upon the authority of Helvering v. Estate of Enright, ante, p. 636. P. 647.

113 F. 2d 114, affirmed.

CERTIORARI, 311 U. S. 639, to review a judgment which affirmed a decision of the Board of Tax Appeals sustaining a deficiency assessment.

Mr. Laurence Sovik for petitioners.

Mr. Gordon Tweedy, with whom Solicitor General Biddle, Assistant Attorney General Clark, and Messrs. Sewall Key and Morton K. Rothschild were on the brief, for respondent.

MR. JUSTICE REED delivered the opinion of the Court.

This case presents the same question as Helvering v. Estate of Enright, ante, p. 636. Petitioners are the executors of a deceased physician who during 1935 was a member of a medical partnership and entitled to forty per cent of its profits. He died December 25, 1935, on which date there were outstanding about $69,000 of partnership accounts receivable for services rendered to patients during his lifetime. His death worked a dissolution of the partnership under § 62(4) of the New York Partnership Law. The decedent's interest in these ac