Washington Law Review


Alisa Eid


In Commissioner v. Indianapolis Power & Light Co., the Supreme Court held that a taxpayer receiving a customer deposit to secure future payment for goods or services may exclude that deposit from income if the taxpayer obligates itself to refund the deposit and if the customer retains the right to cancel service at any time. Because these conditions characterize virtually all security deposits, the Court's rule will allow taxpayers to exclude most security deposits from income. This Note examines the Court's decision and suggests that the Court's rule should not be extended to any situation where either the obligation to refund the deposit is not imposed by law or the customer contracts to purchase future goods or services. This restriction will prevent taxpayers from taking advantage of the rule to avoid federal income tax.

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