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taxed. When deductions are taken early (at the time
money is added to the reserve), an equal amount of
income is obviously not taxed. That income is taxed,
however, at the later time when deductions would have
been taken under a different system (i.e., at the time
rebates are paid, the absence of deductions means that
an equal amount of income is taxed). Most important,
at the time the company ceases to use the reserve
(e.g., when the company closes out its business), any
remaining balance in the reserve must be included in
taxable income. * * * Thus, no income is avoided
altogether. Any excess deductions in earlier years are
offset by an equal amount of taxable income in the
final day. The question becomes one of timing, whether
the income is taxed when the amounts are added to the
reserve or when the reserve is abandoned on the Day of
Armageddon. * * * [743 F.2d at 799.]
As noted above, petitioner’s practice of offsetting against
gross receipts the payments into the BUF accounts in issue
reduced the income of his bail bond business earlier than
otherwise would have been proper, and concomitantly eliminated
deductions at the proper time for claiming them; i.e., when
liabilities were paid from the BUF accounts. Moreover,
petitioner’s practice did not avoid the reporting of income
because, notwithstanding his professed lack of intention to
include any of the balances of his BUF accounts in income when
they were refunded to him, at the termination of his association
with the surety, those balances, to the extent they represented
petitioner’s payments into those accounts which he treated as
current offsets to the gross receipts of his business, would be
includable in income. Knight-Ridder Newspapers, Inc. v. United
States, supra at 799; see also Haynsworth v. Commissioner, 68
T.C. 703, 708-714 (1977), affd. without published opinion 609
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