## Facts

- Vander Poel, Francis & Co., Inc. was a New York corporation using the cash receipts and disbursements method for books and tax returns.
- In 1942, the board voted salaries for its two principal officers and shareholders, S. Oakley Vander Poel and James W. Francis.
- The corporation unconditionally credited the voted salaries to the officers’ personal accounts on the corporate books.
- The officers could withdraw the credited amounts at any time, but only part was withdrawn and paid during 1942.
- Approximately $11,781.51 remained credited but unpaid in cash or property during 1942.
- The officers reported the full credited salary amounts as income on their individual returns.
- The corporation deducted the full voted and credited salaries on its 1942 corporate return.
- The Commissioner allowed deductions only for the amounts actually paid during 1942 and disallowed the unpaid credited balance, creating an income tax deficiency.

## Issues

1. Whether a cash-basis corporation may deduct officers’ salaries that were voted and unconditionally credited to officers’ accounts but not actually paid in cash or property during the taxable year.
2. Whether a “constructive payment” doctrine permits an employer deduction parallel to the employees’ constructive receipt of the credited amounts.

## Decision

- The Tax Court sustained the Commissioner’s determination.
- The court held that a cash-basis corporation may deduct officers’ compensation only to the extent actually paid in cash or property during the year.
- The unpaid balance of salaries merely credited on the books was not deductible for 1942.
- The court rejected any general doctrine of “constructive payment” for cash-basis employers.

## Legal Principles

- Under the cash receipts and disbursements method, deductions generally require actual payment; a bookkeeping credit alone does not constitute payment.
- Constructive receipt may require an employee to include amounts made fully available, but that rule does not create a corresponding employer deduction absent actual disbursement.
- Timing of a cash-basis employer’s salary deduction depends on when the employer parts with cash or property, not on whether the recipient reports income on a constructive-receipt theory.

## Conclusion

A cash-basis corporation cannot deduct unpaid officers’ salaries that are only unconditionally credited to officers’ accounts; without an actual cash or property payment during the taxable year, the deduction is deferred until payment occurs, and no constructive-payment doctrine supplies a current-year deduction.


Vander Poel, Francis & Co. v. Commissioner, 8 T.C. 407 (1947)