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Florida Tax Review

Abstract

This Article explores the role of substantial performance under the all events tests of sections 451 and 461 by placing particular emphasis on its application to ministerial acts. Because these Code sections focus on unconditional rights and liabilities, Part II starts with a discussion of conditions constructed by courts to preserve expectations and avoid forfeitures in accordance with promises contained in bilateral contracts. This discussion of contract law then describes why, in response to additional concerns about fairness, courts treat the substantial performance of certain promises as satisfying the conditions that the courts construct. The discussion illustrates how a party’s substantial performance, rather than full performance, can establish unconditional rights and obligations under a contract.

The remainder of the Article discusses substantial performance in the context of the tax law. Part III considers how substantial performance, as developed under contract law, might and should impact income and expense accruals under the all events tests. This consideration begins by examining a poorly-explained anomaly under the all events tests that disregards unfulfilled requirements to perform ministerial acts in determining when to accrue income and expense items. That Part then explains that the all events tests could better justify such accruals, despite the unfulfilled requirements, by treating a party’s substantial performance under the contract as being sufficient to fix certain rights and liabilities. Finally, that Part of the Article suggests that the all events tests cannot confine considerations of substantial performance to ministerial acts. Accordingly, that Part argues that a party’s substantial performance—rather than full performance—of primary contractual obligations would similarly require accruals for those obligations. Finally, Part IV describes the desirability of taking substantial performance into account in applying the all events tests, despite the difficulty of the resulting analyses, to the extent such applications also reflect any constructive conditions to the parties’ contractual obligations.

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