496 Opinion of the Court. ment income has actually been reported for taxes all along substantially on a modified cash receipts basis, and the taxpayer's net income, which is subjected both to the normal income tax and to the excess profits tax, has not in any of these years reflected the unpaid balances on the installment notes, or any part of them. On the contrary, these balances were listed on respondent's tax returns during these years as "Unrealized Profit Installment Sales." On its 1943 excess profits tax return respondent nevertheless reported as "accumulated earnings and profits" the amount of "Unrealized Profit Installment Sales" shown on its books at the end of 1942, and included this amount in "invested capital." It thus sought to deduct 8% of its theretofore designated "unrealized profit" in computing its excess profits tax. The Commissioner redetermined the tax for 1943 after eliminating this item from "invested capital." The Tax Court sustained the Commissioner's redetermination, 7 T. C. 669, relying on its opinion in Kimbrell's Home Furnishings, Inc. v. Commissioner, 7 T. C. 339.5 The Circuit Court of Appeals, with one justice dissenting, reversed on the authority of its decision in Commissioner v. Shenandoah Co., 138 F. 2d 792. The Government's petition for certiorari alleged that the result reached by the Circuit Court of Appeals was counter to the Commissioner's regulations and to long-standing tax practices recognized by statutes and judicial opinions, under which practices a taxpayer normally cannot report taxable income on one accounting basis and adjustments of that income on another. The * In its 1943 return respondent also reported the amount of such unrealized profits shown on its books as of the end of the two preceding years for purposes of calculating the excess profits credit carryover authorized by § 710 (c). 5 The Kimbrell case was subsequently reversed but not on the contention here urged. 159 F.2d 608. Opinion of the Court. 333 U.S. questions thereby raised are of importance in tax administration and we granted certiorari to consider them. A Treasury regulation, set out in part below, applicable to both the normal income tax and the excess profits tax,' specifically provides that "a corporation computing income on the installment basis as provided in section 44 shall, with respect to the installment transactions, compute earnings and profits on such basis." 8 Since respondent computed its taxable income from installment sales on the installment or modified cash receipts basis, but computed its earnings and profits from these same sales on another basis, the accrual, it contends that the regulation is invalid because inconsistent with the governing code provisions. Validity of the regulation is therefore the crucial question. 6 Section 29.115-3 of Regulations 111: "EARNINGS OR PROFITS.—In determining the amount of earnings or profits (whether of the taxable year, or accumulated since February 28, 1913, or accumulated prior to March 1, 1913) due consideration must be given to the facts, and, while mere bookkeeping entries increasing or decreasing surplus will not be conclusive, the amount of the earnings or profits in any case will be dependent upon the method of accounting properly employed in computing net income. For instance, a corporation keeping its books and filing its income tax returns under sections 41, 42, and 43 on the cash receipts and disbursements basis may not use the accrual basis in determining earnings and profits; a corporation computing income on the installment basis as provided in section 44 shall, with respect to the installment transactions, compute earnings and profits on such basis; . . . .” The meaning of all terms used in the subchapter dealing with the income tax was expressly made applicable to terms used in the excess profits subchapter. § 728. Treasury Regulations 112 provided: ". . . In general, the concept of 'accumulated earnings and profits' for the purpose of the excess profits tax is the same as for the purpose of the income tax." § 35.718-2. See also H. R. Rep. No. 2894, 76th Cong., 3d Sess., 41. 8 This part of the regulation was added as an amendment to Reg. 103, § 19.115-3, now § 29.115-3 of Reg. 111, after adoption of the 1940 Excess Profits Tax Law. T. D. 5059, July 8, 1941. 496 Opinion of the Court. This Court has many times declared that Treasury regulations must be sustained unless unreasonable and plainly inconsistent with the revenue statutes and that they constitute contemporaneous constructions by those charged with administration of these statutes which should not be overruled except for weighty reasons. See, e. g., Fawcus Machine Co. v. United States, 282 U. S. 375, 378. This regulation is in harmony with the long-established congressional policy that a taxpayer generally cannot compute income taxes by reporting annual income on a cash basis and deductions on an accrual basis. Such a practice has been uniformly held inadmissible because it results in a distorted picture which makes a tax return fail truly to reflect net income. This has been the construction given income, estate, and previous excess profits tax laws by administrative officials, the Board of Tax Appeals, and the courts." The regulation's reasonableness and consistency with the statutes which impose the excess profits tax on incomes is also supported by prior legislative and administrative history. The present "invested capital" deduction is patterned after a similar provision in § 326 (a) of the Revenue Act of 1918, 40 Stat. 1057, 1088, 1092. That section imposed a "War-Profits and Excess-Profits Tax." Invested capital there included “paid-in or earned surplus and undivided profits." Under that law the administration, the Board of Tax Appeals, and the courts have uniformly held that a taxpayer, having elected to 9 G. C. M. 2951, VII-I Cum. Bull. 160 (1928); I. T. 3253, 1939–1 Cum. Bull. 178; Consolidated Asphalt Co., 1 B. T. A. 79, 82; Henry Reubel Executor, 1 B. T. A. 676, 678–680; B. B. Todd, Inc., 1 B. T. A. 762, 766; Bank of Hartsville, 1 B. T. A. 920, 921; Atlantic Coast Line R. Co., 2 B. T. A. 892, 894–895; United States v. Anderson, 269 U. S. 422, 440; Jacob Bros. v. Comm'r, 50 F. 2d 394, 396; Jenkins v. Bitgood, 22 F. Supp. 16, 17-18, aff'd, 101 F. 2d 17. 776154 O-48-37 Opinion of the Court. 333 U.S. adopt the installment basis of accounting, could not thereafter distort his true excess profits tax income by including uncollected installment obligations in his "invested capital" deduction base.10 A taxpayer, having chosen to report his taxable income from installment sales on the installment cash receipts plan, thereby spreading its gross earnings and profits from such sales over a number of years and avoiding high tax rates, was not permitted. to obtain a further reduction by shifting to an accrual plan and treating uncollected balances on these installment sales as though they had actually been received in the year of the sale. The history of the congressional adoption of the optional installment basis also supports the power of the Commissioner to adopt the regulation here involved. Prior to 1926 the right of a taxpayer to report on the installment plan rested only on Treasury regulations." In 1925, the Board of Tax Appeals held these regulations were without statutory support.12 Congress promptly, in § 212 (d) of the 1926 Revenue Act, adopted the present statutory authority for an elective installment basis for reporting income, the Senate committee report on the measure designating it as a "third basis, the installment 10 Schmoller & Mueller Piano Co. v. United States, 67 Ct. Cl. 428; John M. Brant Co. v. United States, 40 F. 2d 126; Standard Computing Scale Co. v. United States, 52 F. 2d 1018; Jacob Bros. v. Comm'r, 50 F. 2d 394; Tull & Gibbs v. United States, 48 F. 2d 148; Appeal of Blum's, Inc., 7 B. T. A. 737, 771; New England Furniture & Carpet Co. v. Comm'r, 9 B. T. A. 334; Green Furniture Co. v. Comm'r, 14 B. T. A. 508; S. Davidson & Bros. v. Comm'r, 21 B. T. A. 638, 644; Federal St. & Pleasant Valley Passenger R. Co. v. Comm'r, 24 B. T. A. 262, 266. 11 Article 117 of Regulations 33 (Revised), promulgated Jan. 2, 1918, and Article 42 of Regulations 45, promulgated April 17, 1919. 12 B. B. Todd, Inc., 1 B. T. A. 762; H. B. Graves Co., 1 B. T. A. 859; Hoover-Bond Co., 1 B. T. A. 929; Six Hundred and Fifty West End Avenue Co., 2 B. T. A. 958. 496 Opinion of the Court. basis." 13 This new statutory provision was strikingly similar to the Treasury regulations previously held unauthorized by the Board of Tax Appeals. That the Commissioner was particularly intended by Congress to have broad rule-making power under the regulation was manifested by the first words in the new installment basis section which only permitted taxpayers to take advantage of it "Under regulations prescribed by the Commissioner with the approval of the Secretary . . . The clause is still contained in § 44 of the Internal Revenue Code. This gives added reasons why interpretations of the Act and regulations under it should not be overruled by the courts unless clearly contrary to the will of Congress. See Burnet v. S. & L. Bldg. Corp., 288 U. S. 406, 415. The installment basis of reporting was enacted, as shown by its history, to relieve taxpayers who adopted it from having to pay an income tax in the year of sale based on the full amount of anticipated profits when in fact they had received in cash only a small portion of the sales price. Another reason was the difficult and timeconsuming effort of appraising the uncertain market value of installment obligations.14 There is no indication. in any of the congressional history, however, that by passage of this law Congress contemplated that those taxpayers who elected to adopt this accounting method for their own advantage could by this means obtain a further tax advantage denied all other taxpayers, whereby they could, as to the same taxable transaction, report in part on a cash receipts basis and in part on an accrual basis. We find nothing unreasonable in the regulations here. See Commissioner v. Wheeler, 324 U. S. 542. 13 S. Rep. No. 52, 69th Cong., 1st Sess., 19, the Senate Finance Committee's report on Revenue Act of 1926, 44 Stat. 9, 23. 14 S. Rep. No. 52, 69th Cong., 1st Sess. 19; Willcuts v. Gradwohl, 58 F.2d 587, 589-590. |