$112,652, $379,041, $1,694,423, and $961,212 for the taxable years 1972, 1976, 1978, 1980, and 1981, respectively. Respondent mailed the notice of deficiency to petitioner on April 29, 1993, and petitioner timely filed its petition in this Court.

OPINION

Petitioner argues that the annual credit card fee is a payment for services, and as such is eligible for partial deferral from the inclusion in income under Rev. Proc. 71-21, 19712 C.B. 549. Respondent's position is that the fee is not payment for services, but rather, is a payment "for membership in the card plan", which respondent then equates to an extension of credit in the nature of additional interest or a loan commitment fee. In the alternative, respondent argues that if the fee is for services, then petitioner's deferral does not clearly reflect income, and respondent's denial of the benefits of Rev. Proc. 71-21, supra, was not an abuse of discretion. Respondent argues that in either view, Rev. Proc. 71-21, supra, is not available to petitioner, and the fees must be included in income in the year of receipt.

Credit Card Fees as Payment for Services

Petitioner's credit card program provides benefits for both merchants and cardholders. Processing of the sales drafts involved merchant aspects and cardholder aspects. Transactions could be for either convenience users or cardholders with revolving balances. The merchants, the convenience users, and the revolving-balance users all were served by the operation of this integrated system. It is difficult to apportion the benefits of the plan to its specific users.

Petitioner derived its income from its credit card program from four sources: The merchants paid through the merchant discounts. Merchant banks (banks other than the subsidiary issuing banks) paid through the interchange fees. Cardholders with outstanding (revolving) balances paid interest for the use of that credit. All cardholders were charged the annual fee, and the amount of the annual fee was the same regardless of credit line, amount charged, or the amount of the outstanding balance, if any. It is similarly difficult to

match any particular type of income with particular services performed by petitioner. See supra note 5.

Nevertheless, cardholders paid annual fees and received services. All cardholders were issued at least one plastic card each year and had the right to use that card, subject to cancellation by petitioner at any time. However, if petitioner canceled the card, it refunded the annual fee on a pro rata basis for the number of months remaining in the 1-year period. Cardholders had the opportunity to use their cards for payment at a large number of businesses, negating the risk of carrying large amounts of cash or the restrictions on writing checks. Cardholders had access to petitioner's customer service staff on a 24-hour basis, and the right to withhold payment on disputed charges. We agree with petitioner that its cardholders remitted the annual fees as payment for services.

Clear Reflection of Income

The general rule for the taxable year of inclusion of income appears in section 451. Section 451(a) requires that

The amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period.

Section 446(a) provides that "Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books." The accrual method of accounting is one permissible method of computing taxable income. Sec. 446(c)(2). Petitioner is an accrual basis taxpayer and has kept its books regularly in accordance with this method. Section 1.446– 1(c)(1)(ii), Income Tax Regs., provides:

Accrual method. Generally, under an accrual method, income is to be included for the taxable year when all the events have occurred which fix the right to receive such income and the amount thereof can be determined with reasonable accuracy.

However, "merely because the method of accounting a taxpayer employs is in accordance with generally accepted accounting procedures, this is not to hold that for income tax purposes it so clearly reflects income as to be binding on the

Treasury."" Commissioner v. Idaho Power Co., 418 U.S. 1, 15 (1974) (quoting American Auto. Association v. United States, 367 U.S. 687, 693 (1961)). Financial accounting and income tax accounting methods have different objectives. Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 542-543 (1979). As stated by the Supreme Court:

The primary goal of financial accounting is to provide useful information to management, shareholders, creditors, and others properly interested; the major responsibility of the accountant is to protect these parties from being misled. The primary goal of the income tax system, in contrast, is the equitable collection of revenue; the major responsibility of the Internal Revenue Service is to protect the public fisc. *** Given this diversity, even contrariety, of objectives, any presumptive equivalency between tax and financial accounting would be unacceptable. [Id.]

Nevertheless, "where a taxpayer's generally accepted method of accounting is made compulsory by the regulatory agency and that method clearly reflects income, it is almost presumptively controlling of federal income tax consequences." Commissioner v. Idaho Power Co., supra at 15 (fn. ref. omitted).

If the taxpayer's method of accounting does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary, does clearly reflect income. Sec. 446(b). Respondent has broad powers in determining whether accounting methods used by a taxpayer clearly reflect income. Commissioner v. Hansen, 360 U.S. 446, 467 (1959).

Where accrual method taxpayers have received advance payments for services and have unrestricted access to those funds, courts have upheld respondent's determinations that these payments are to be included in income in the year of receipt. Schlude v. Commissioner, 372 U.S. 128 (1963); American Auto. Association v. United States, 367 U.S. 687 (1961); Automobile Club of Michigan v. Commissioner, 353 U.S. 180 (1957); RCA Corp. v. United States, 664 F.2d 881 (2d Cir. 1981); Angelus Funeral Home v. Commissioner, 407 F.2d 210 (9th Cir. 1969), affg. 47 T.C. 391 (1967); S. Garber, Inc. v. Commissioner, 51 T.C. 733 (1969); Popular Library, Inc. v. Commissioner, 39 T.C. 1092 (1963). But cf. Artnell Co. v. Commissioner, 400 F.2d 981 (7th Cir. 1968), revg. and remanding 48 T.C. 411 (1967); Boise Cascade Corp. v. United States, 208 Ct. Cl. 619, 530 F.2d 1367 (1976); Collegiate Cap

& Gown Co. v. Commissioner, T.C. Memo. 1978–226. While respondent focuses on such cases, particularly the Supreme Court's Schlude-American Auto. Association-Automobile Club of Michigan trilogy, petitioner does not challenge them. Petitioner instead relies upon exceptions thereto that respondent has chosen to make administratively.

Petitioner's case is squarely based on Rev. Proc. 71–21, 1971-2 C.B. 549, the use of which it says should be available to it. Respondent's primary objection to petitioner's use of that revenue procedure is the argument that the annual credit card fees do not represent payments for services under the cardholder agreement, a factual issue we have resolved in petitioner's favor. Almost as an afterthought, respondent argues that petitioner's accounting method for these annual fees does not clearly reflect income, an argument based upon an insistence that Rev. Proc. 71–21, supra, requires a matching of income and expense on an individual cardholder basis. Petitioner admittedly does not track the expenses for these services on an individual cardholder basis. Having then decided that the revenue procedure, as thus interpreted by respondent, does not apply to petitioner, respondent concludes there is thus no abuse of discretion in denying petitioner the use of Rev. Proc. 71-21, supra. We think respondent's approach is inconsistent with the intended purpose and benefit of the revenue procedure, that petitioner's pro rata reporting of these fees over a 12-month period satisfies Rev. Proc. 71–21, supra, and that respondent's denial of the benefits of the revenue procedure to petitioner amounts to an abuse of discretion.

In 1970, respondent issued Rev. Proc. 70-21, 1970-2 C.B. 501,

to implement an administrative decision, made by the Commissioner of Internal Revenue in the exercise of his discretion under section 446 of the Internal Revenue Code of 1954, to allow accrual method taxpayers in certain specified and limited circumstances to defer the inclusion in gross income for Federal income tax purposes of payments received (or amounts due and payable) in one taxable year for services to be performed by the end of the next succeeding taxable year. * * *

Rev. Proc. 70-21, sec. 1. The following year, respondent issued Rev. Proc. 71-21, 1971-2 C.B. 549, which superseded Rev. Proc. 70-21, supra, but incorporated the basic principles

of the earlier revenue procedure. Rev. Proc. 71-21, sec. 2, states:

In general, tax accounting requires that payments received for services to be performed in the future must be included in gross income in the taxable year of receipt. However, this treatment varies from financial accounting conventions consistently used by many accrual method taxpayers in the treatment of payments received in one taxable year for services to be performed by them in the next succeeding taxable year. The purpose of this Revenue Procedure is to reconcile the tax and financial accounting treatment of such payments in a large proportion of these cases without permitting extended deferral in the time of including such payments in gross income for Federal income tax purposes. Such reconciliation will facilitate reporting and verification of such items from the standpoint of both the taxpayers affected and the Internal Revenue Service. [Emphasis added.] Rev. Proc. 71-21, sec. 3.02, further provides that

An accrual method taxpayer who, pursuant to an agreement (written or otherwise), receives a payment in one taxable year for services, where all of the services under such agreement are required by the agreement as it exists at the end of the taxable year of receipt to be performed by him before the end of the next succeeding taxable year, may include such payment in gross income as earned through the performance of the services

** * *

The amount of the advance payment includable as gross receipts in gross income in the taxable year of receipt must be no less than the amount of such payments included for purposes of the taxpayer's books and records and all reports to shareholders, partners, other proprietors or beneficiaries, and for credit purposes. Rev. Proc. 71-21, sec. 3.11. Petitioner uses the same method for financial, regulatory, and tax accounting purposes and thus satisfies this requirement. Taxpayers who avail themselves of this procedure must maintain adequate books and records so that the amount deferred on the income tax return for any year can be verified. Rev. Proc. 71-21, sec. 4. The parties have stipulated that petitioner's books and records satisfy this requirement.

Petitioner relies on Rev. Proc. 71-21, supra, for its method of accounting for these annual credit card fees. Section 3.14 of Rev. Proc. 71-21 provides that the deferral of income in accordance with this procedure will be treated as an acceptable method of accounting under section 446 as long as the method is consistently used by the taxpayer. Petitioner consistently used the same method of accounting for these