The Sixth Circuit yesterday, in Chrysler Corp. v. Commissioner, No. 03-1214 (6th Cir. 2/09/06), affirmed the Tax Court (T.C. Memo. 2000-283) in finding that under the "all events" test applicable to accrual method taxpayers, Chrysler could not deduct $865 million in estimated future warranaty claims in the year it shipped the cars to its dealers:
Chrysler faces potential liability, which in its case is based upon the express and implied warranties that accompany the sale of its motor vehicles. However, that liability does not become firmly established until a valid warranty claim is submitted. As the Court [in United States v. General Dynamics Corp., 481 U.S. 239, 243-44 (1987)] explained, “Nor may a taxpayer deduct an estimated or an anticipated expense no matter how statistically certain, if it is based on events that have not occurred by the close of the taxable year.”
Joe Kristan has more here.
One response to “6th Circuit: Chrysler Cannot Deduct Future Warranty Claims in Year Cars Shipped”
Who in the world was advising Chrysler that they could do this? I thought that that was pretty well settled.