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United States, supra, involved a reserve for anticipated
advertising rebate expenses. The taxpayer added to the reserve
and deducted an amount based on its estimated liability for
rebates for the year; rebates paid were charged against, and
reduced, the reserve. The court concluded that the rebate
reserve was an item affecting the proper timing of a deduction
because disbursements from the reserve would be deductible when
made and the taxpayer’s practice simply accelerated those
deductions. Knight-Ridder Newspapers, Inc. v. United States,
supra at 798. Similarly, in the instant case, a disbursement
from one of the BUF accounts in issue would properly be
deductible when made, Sebring v. Commissioner, 93 T.C. at 225,
and petitioner’s practice of offsetting payments into the BUF
accounts against the gross receipts of his business in effect
accelerated the deductions otherwise allowable. The court in
Knight-Ridder Newspapers further analyzed whether the taxpayer's
use of the reserve permanently avoided the reporting of income,
reasoning as follows:
though we talk about the timing of deductions, the
basic issue is whether income is reflected and taxed.
The reserve method determines when income will be
7(...continued)
taxpayers and/or claims of deductions based on estimates of
expenses or reserve accounts. Petitioners point out that
petitioner was a cash method taxpayer during relevant times and
further contend that the payments into the BUF accounts were not
based on estimates of expenses, but on a percentage of bail bond
premiums received and that the BUF accounts were not reserves in
an accounting sense.
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