William O. Douglas

“ Under the reserve method of accounting a taxpayer includes in his income the full face amount of a receivable on its creation and adjusts at the end of each taxable year the reserve account so that it equals that portion of current accounts receivable that is estimated to become worthless in subsequent years. Any additions necessary to increase the reserve are currently deductible. When an account receivable becomes worthless during the year, the reserve account is decreased and no additional bad debt deduction is allowed. ”

“ The District Court allowed recovery and the Court of Appeals reversed, 414 F.2d 627. We granted the petition for certiorari to resolve the conflict between the Fifth and the Ninth Circuits [1] on this question of law. ”