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arisen under a Federal or State law. Sec. 172(f)(1)(B).
Petitioners argue that their liability to pay accounting and
professional fees and IRS examination expenses arose under
Federal law.
We disagree. It is true that the 1934 Act, ERISA, and the
Internal Revenue Code require petitioners to file financial
reports and disclosure statements, maintain and provide books and
records, and cooperate with IRS audits. However, those
provisions do not establish petitioners’ liability to pay the
amounts at issue. Petitioners’ liability to pay those amounts
did not arise until petitioners contracted for and received the
services. Petitioners' choice of the means of compliance, and
not the regulatory provisions, determined the nature and amount
of their costs. If, on the other hand, petitioners had failed to
comply with the auditing and reporting requirements or had not
obtained the particular services in issue here, their liability
would have been in amounts not measured by the value of services.
Thus, petitioners' liability did not arise under Federal law.
2. Enactment of the Specific Liability Loss Rule With the
Economic Performance Rules
Our interpretation is entirely consistent with the
legislative history which accompanied enactment of the
predecessor of the specified liability loss provision. Before
1984, an accrual basis taxpayer generally could deduct an expense
for the tax year in which (a) all events had occurred which
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