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adjustment4 increasing petitioners’ income pursuant to section
481(a).
As set forth in our findings above, from 1968 through 1988,
petitioner treated the payments made into the BUF accounts as a
cost of goods sold, offsetting the gross receipts of his
business. Petitioner did not deduct from his taxable income
disbursements from those accounts to reimburse Associated for
losses and expenses incurred as a result of bond forfeitures. In
Sebring v. Commissioner, 93 T.C. 220, 224-227 (1989), we held
that payments into BUF accounts were not deductible when made and
that deductions are allowed only for disbursements made to
satisfy liabilities.5 We reasoned that payments into the
accounts were “in the nature of a security deposit held for
payment of future liabilities.” Id. at 226. Petitioners concede
that Sebring controls the tax treatment of payments into and
disbursements from petitioner’s BUF accounts and that
petitioner’s prior practice of offsetting payments made into the
BUF accounts against gross receipts was incorrect.
We must accordingly consider whether the change that was
required by respondent for purposes of bringing the tax treatment
4 The amount of the adjustment, $146,499, essentially
represents the Jan. 1, 1988, opening balances of the BUF accounts
maintained in connection with petitioner’s bail bond business,
less interest accumulations.
5 The taxpayer in that case, like petitioner, used the cash
receipts and disbursements method of accounting. Sebring v.
Commissioner, 93 T.C. 220, 221 (1989).
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