This article examines footnote 3 in the Supreme Court's 1987 opinion in United States v. General Dynamics. In that case, governed by the law in place before the Tax Reform Act of 1984, the Court held that General Dynamics had to defer deductions attributable to claims for employee medical expenses until the claims were approved. In the footnote, the Court suggested that the 1984 amendment to section 461(h) of the Internal Revenue Code postponing the time for deducting accrued expenses until economic performance would, in a similar case governed by the statutory change, have further deferred General Dynamics' deduction until time of payment. The author argues that the Court was wrong as a general matter (even though its suggestion might accidentally lead to the right timing result in some cases). He argues that the Court misread the legislative history of section 461(h) and provided no theoretical justification for treating economic performance as occurring at time of payment (rather than when services are provided) in the case of "employee benefit liabilities." Moreover, the Court ignored the potential effects of other sections of the Code, such as section 404, which might control the timing of deductions associated with deferred benefits provided through unfunded medical reimbursement plans.


Taxation, United States v. General Dynamics, Deductions, IRC section 461(h), IRC section 404, Employee Medical Expenses

Publication Date


Document Type


Place of Original Publication

Tax Notes

Publication Information

41 Tax Notes 665 (1988)

Included in

Tax Law Commons


COinS Erik M. Jensen Faculty Bio