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Respondent, in support of his contention that National breached
or failed to perform its contractual obligation to F&D, relies on
F&D’s allegations of breach of contract in its June 2000
complaint concerning the performance bond and indemnity contract.
Respondent’s reasoning is unconvincing. F&D’s allegations in its
June 2000 pleading were made after National acknowledged its
$2,500,000 indemnity obligation to F&D. Allegations of breach of
contract after the close of 1999 would not affect the status of
National’s recognition of the liability in 1999. Accordingly, we
reject respondent’s contention that the liability arose out of a
breach of contract.
With respect to the accrual of a deduction arising in
connection with the providing of services, economic performance
occurs as the services are provided. Sec. 461(h)(2)(A)(i); sec.
1.461-4(d)(2)(i), Income Tax Regs. Services provided to a
taxpayer also include services provided to another person at a
taxpayer’s direction. Sec. 1.461-4(d)(6)(i), Income Tax Regs.
We have already decided that the liability arose out of F&D’s
promise to perform under the performance bond. Respondent
contends that if the performance bond and the indemnity agreement
are to be considered separate from the construction contract,
then we should view F&D’s services as having been rendered to the
District. In that regard, the work or services performed by F&D
in completing the construction contract is a benefit to National,
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