## Facts

- Boise Cascade Corporation and subsidiaries sought refunds of nearly $2.4 million in federal income taxes and interest for tax years 1955–1961.
- The litigation involved Boise Cascade’s treatment of gains attributable to original issue discount (OID) on evidences of indebtedness issued after December 31, 1954, and before May 28, 1969, and held for no more than six months.
- The IRS also required one Boise Cascade operation to change its accounting method under I.R.C. § 446(b), asserting the existing method did not clearly reflect income.
- A trial judge recommended a decision largely favoring Boise Cascade; both sides filed exceptions.
- The Court of Claims reviewed the consolidated cases on briefs and oral argument and issued a per curiam decision, rejecting the trial judge’s OID analysis but largely accepting his accounting-method analysis.

## Issues

1. Whether gain attributable to OID on qualifying debt instruments held six months or less by an accrual-basis taxpayer is ordinary income taxable currently as earned, or short-term capital gain recognized on disposition.
2. Whether the Commissioner abused discretion under I.R.C. § 446(b) by determining Boise Cascade’s accounting method did not clearly reflect income and by requiring a change.
3. Whether alleged nonenforcement of comparable OID treatment against nonresident foreign taxpayers constituted unlawful discrimination against domestic taxpayers.

## Decision

- The court held that Boise Cascade’s gains attributable to OID on the specified instruments held for six months or less were ordinary income to accrual-basis taxpayers and taxable currently as earned.
- The court reversed the trial judge on the OID issue, relying on a same-day companion decision that treated materially indistinguishable OID facts the same way.
- The court held the Commissioner abused discretion under I.R.C. § 446(b) in requiring a change to Boise Cascade’s accounting method because the existing method clearly reflected income.
- The court rejected Boise Cascade’s discrimination argument, concluding domestic and nonresident foreign taxpayers were not comparable for equal-protection-type purposes in this context.
- The result was a mixed outcome: the government prevailed on OID; Boise Cascade prevailed on the accounting-method issue; Boise Cascade lost on the discrimination claim.

## Legal Principles

- For accrual-basis taxpayers, OID attributable to discounted debt instruments is treated as interest-like compensation and is ordinary income that accrues over time and is taxable currently as earned.
- OID is not converted into short-term capital gain merely because the discounted instrument is disposed of within a short holding period.
- Under I.R.C. § 446(b), the Commissioner may mandate a change in a taxpayer’s accounting method only if the taxpayer’s method does not clearly reflect income; a forced change may be set aside where the Commissioner cannot justify the determination.
- Claims of discriminatory tax treatment based on asserted differences between taxation of domestic and nonresident foreign taxpayers fail where the groups are subject to materially different statutory and administrative considerations and are not similarly situated.

## Conclusion

The Court of Claims required Boise Cascade to treat short-held OID as ordinary income accruing currently, but it invalidated the IRS’s compelled accounting-method change under § 446(b) as an abuse of discretion and rejected an equal-protection-type discrimination challenge based on alleged disparate treatment of nonresident foreign taxpayers.


Boise Cascade Corp. v. United States, 530 F.2d 1367 (Ct. Cl. 1976)