428 F. 2d 874 - Rowe III v. United States W Rowe

Stuart A. Smith, Atty., Dept. of Justice, Washington, D.C., for defendant-Appellant; Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, Jonathan S. Cohen, Attys., Dept. of Justice, Washington, D.C., on brief; Ernest W. Rivers, U.S. Atty., of counsel.

Thomas A. Brown, Louisville, Ky., for plaintiffs-appellees; A. Robert Doll, Greenebaum, Barnett, Doll & Matthews, Louisville, Ky., on brief.

Before WEICK, Circuit Judge, O'SULLIVAN, Senior Circuit Judge, and WEINMAN, District Judge.

The sole issue raised in this consolidated appeal is whether the District Court erred in holding that the closing balance in the bad debt reserve of a partnership using the accrual method of accounting, which was incorporated by the partners pursuant to Section 351 of the Internal Revenue Code of 1954, 26 U.S.C. 351, did not have to be restored to income in the year of said incorporation. In the recent case of Nash v. United States, 398 U.S. 1, 90 S.Ct. 1550, 26 L.Ed.2d 1 (1970) the Supreme Court held that a partnership which used the accrual method of accounting and the reserve method of accounting for bad debts did not have to include the bad debt reserve in income when it transferred its assets, including the accounts receivable, to controlled corporations in exchange for stock. Accordingly,

It is ordered that the motion of appellee to affirm be granted and that the judgments be and they are hereby affirmed.