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We conclude that petitioners' compliance costs and other
accounting expenses were not liabilities that arose under Federal
or State law.
C. Whether the Act or Failure To Act Which Gave Rise to the
Liability Occurred at Least 3 Years Before the Taxable
Years at Issue
To be a specified liability loss under section 172(f)(1)(B),
the act giving rise to the liability under a Federal or State law
must have occurred at least 3 years before the start of the
taxable year. Sec. 172(f)(1)(B)(i). Petitioners’ contention
that they meet this requirement follows from their contention
that their liability to pay those costs arose under Federal law
to which they were made subject more than 3 years before the
years at issue. We disagree for the reasons stated above at par.
B. Petitioners make no other argument that the liability at
issue arose more than 3 years before the years at issue. Thus,
we conclude that petitioners do not meet this requirement.
D. Conclusion
We hold that petitioners’ professional fees and IRS
examination expenses are not specified liability losses under
section 172(f)(1)(B), and thus are not eligible for the 10-year
carryback under section 172(b)(1)(C).
To reflect the foregoing and concessions,
Orders will be issued
denying petitioners' motions
for partial summary judgment.
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