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transactions that will be treated as tax-motivated transactions.
The definition of a tax-motivated transaction includes "any use
of an accounting method specified in regulations prescribed by
the Secretary as a use which may result in a substantial
distortion of income for any period." Sec. 6621(c)(3)(A)(iv).
In Bailey v. Commissioner, 90 T.C. 558, 628 (1988), affd. in part
and remanded on another issue 912 F.2d 44 (2d Cir. 1990), the
Court determined that the deduction from income of management
fees that should have been capitalized and amortized was a
distortion of income under section 6621(c)(3)(A)(iv); see also
Lieber v. Commissioner, T.C. Memo. 1993-391; Upham v.
Commissioner, T.C. Memo. 1989-253, affd. 923 F.2d 1328 (8th Cir.
1991); sec. 301.6621-2T, Temporary Admin. & Proced. Regs., 49
Fed. Reg. 50391, 50392 (Dec. 28, 1984), 1985-1 C.B. 368.22
22 Sec. 301.6621-2T, Temporary Proced. & Admin. Regs., in
pertinent part provides as follows in question and answer format:
Q-3: What accounting method may result in a
substantial distortion of income for any period under
[sec. 6621(c)(3)(A)(iv)]?
A-3: A deduction or credit disallowed, or income
included, in any of the circumstances listed below
shall be treated as attributable to the use of an
accounting method that may result in a substantial
distortion of income and shall thus be a tax motivated
transaction that results in a tax motivated
underpayment:
* * * * * * *
(9) In the case of a taxpayer who computes
taxable income using the cash receipts and
disbursements method of accounting, any deduction
(continued...)
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