Capital One Financial Corp. v. Commissioner of IRS

This case presented two questions, each born of the efforts of Capital One, a credit card issuer, to defer significant tax liability. First, whether Capital One could retroactively change the method of accounting used to report credit-card late fees on its 1998-1999 tax returns in such a fashion as would reduce is taxable income for those years by roughly $400,000,000. Second, whether Capital One could deduct the estimated costs of coupon redemption related to its MilesOne credit card program before credit card customers actually redeemed those coupons. The court did not permit Capital One to retroactively change the method of accounting because allowing Capital One to do so would open the door to unilateral and retroactive changes in accounting methods with large and unpredictable implications for public revenue. The court also declined to permit the narrow coupon-with-sales exception to undermine the purposes of the all-events rule because little good and much mischief would ensue from upending the Commissioner's reasonable and longstanding interpretation of his regulation. Accordingly, the court affirmed the judgment of the Tax Court.