been withheld on account of the war risk insurance. This reserve amounts to $ 53,290, the check for which is attached hereto."
The controlling statutory provisions are contained in portions of Sections 41 and 42 of the Internal Revenue Code of 1939, 26 U.S.C.A. §§ 41, 42. These provisions are as follows:
'41. General rule
'The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; * * *
' § 42. Period in which items of gross income included
'The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period. * * *'
It seems clear that on June 25, 1946, as the result of corporate action of Metropolitan's Board of Directors, Metropolitan was saddled with a liability to pay plaintiff and by the same token plaintiff acquired a right to receive from Metropolitan. Following a series of implementing procedures by Metropolitan's Actuarial Division, by December 22, 1946, the exact amount of the rebate or dividend was determined. At that point, so far as Metropolitan was concerned there remained only the functions of its Group Review Section and its Check Writing Department.
As to the functions of the Group Review Section, Fred Bradley, an Assistant Manager in Metropolitan's Group Underwriting Division, a witness called by plaintiff, testified as follows:
'A Our function was to separate the authorization from the Group Actuarial Division, to call for the files, for a number of reasons, to verify the name of the group, for instance -- oftentimes they change and the Actuarial Division hasn't been notified, but we have means of checking it.
'We look through the files for any special correspondence as to how the policyholder wants his dividend paid. Sometimes they want it broken up in two or three checks, sometimes they would like only one check. We check the name of the person to whom our letters should be addressed, as to spelling and title, make sure that the person we sent it to last year is still on the job. We go to our Group Accounts Division and check on the premium. It is not customary to pay a dividend until the premium for the full policy year has been paid. It is our function to check that. Following that we prepare a requisition to our checkwriter for the drawing of checks.'
The functions performed by this section in January 1947 were certainly purely ministerial and had nothing to do either with the fixing or the confirming of a liability in favor of the corporation against Metropolitan. In January the corporation well knew whether it was indebted to Metropolitan for any unpaid premiums and even if it were so indebted, it would involve nothing more than a mere bookkeeping entry, the gross amount of the rebate or dividend would still be reportable.
The corporation elected to keep its books and records on an accrual basis. It contends that it 'had no knowledge whatsoever, prior to January 14, 1947, of Metropolitan's intention to pay a special dividend nor of the amount thereof.' I do not feel that knowledge is a necessary ingredient in the ascertainment of the time of income accrual for tax purposes. Neither plaintiff nor defendant has furnished the Court with any authority directly in point, nor has our independent search disclosed such authority.
Had the corporation become aware of an allowable credit after the end of the taxable year, it certainly would have sought leave to file an amended return, and leave to so file would undoubtedly have been granted.
Surely then the converse must be true.
Mertons' Law of Federal Income Taxation, Vol. 2, Section 12.60, states:
'* * * It is essential to recall, and keep in mind what has been previously said, that it is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income and that primarily distinguishes the accrual basis from the cash basis. When the right to receive an amount becomes fixed the income accrues. Income does not accrue to a taxpayer until there arises in him a fixed and unconditional right to receive the amount even though actual payment is to be deferred. * * * When an item accrues is largely a question of fact to be determined in each case. As is true of other factual questions the burden of proof is on the taxpayer to establish that the Commissioner is wrong in his determination of when an item accrued. * * *'
In Patrick McGuirl, Inc., v. Commissioner of Internal Revenue, 2 Cir., 74 F.2d 729, 730, certiorari denied 295 U.S. 748, 55 S. Ct. 827, 79 L. Ed. 1693, the court said:
'* * * As a general proposition, where the right to receive money is certain, namely, the liability to pay is unconditional, and books are kept on an accrual basis, the money actually received is considered income as of the year the right to receive it arose and not as of the year when received, even though the amount to be received is not certain as of the year the right to the money accrued. * * *'
It is my conclusion that the special dividend of $ 53,290 received by plaintiff from Metropolitan was income that accrued during the year 1946. Accordingly, judgment will be entered for defendant.