Schuessler v. Commissioner 230 F.2d 722 (5th Cir. 1956) Schuessler was a company that sold furnaces. As part of each sale, they guaranteed to go out to the purchaser's site and turn the furnace on and off each season for five years. Schuessler set aside some money from each sale (about $13k total) to represent their estimated cost of sending workers to turn the furnaces on and off. Schuessler's furnaces cost about $20 more than their competitors who didn't make such a guarantee. The $13k Schuessler budgeted for future expenses is known as a reserve. Schuessler used accrual method of accounting, which says that the taxpayer only counts income when all of the events that entitle the taxpayer to receive the income have occurred. When Schuessler filed their taxes, they did not include the $13k in their gross income. The IRS disagreed and assessed a deficiency. Schuessler argued that they hadn't earned the $13k until the furnaces got turned on and off, therefore they didn't need to include it in their current year's gross income when they collected the money because they used the accrual method. It should only be included five years from now when the guarantee expired. The IRS argued that Schuessler sold furnaces, and they earned the money as soon as the sale was completed. Therefore the $13k needed to be included in their current year's gross income. The Tax Court found for the IRS. Schuessler appealed. The Appellate Court reversed. The Appellate Court found that the costs of servicing the furnaces had been factored into the cost of each sale. The Court found that Schuessler's method of accounting came much closer to giving the correct picture of their income that would a system in which they sold equipment in one year and received an inflated price because they obligated themselves to refund part of it in services later but was required to report the total receipts as income on the high level of the sales years and take deductions on the low level of the service years. The Court found that Schuessler's actions were in accordance with the statutory requirements of the Tax Code.