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under multiyear warranty requiring procurement of replacement
parts), Examples (4) and (5), Income Tax Regs. Since no portion
of the Fees is incurred for a taxable year preceding the year in
which the corresponding service benefits are provided, the Fees
do not constitute capital expenditures like the Premiums that are
recovered through amortization. The result under section 461(h)
marks a departure from the law in effect prior to its enactment
as part of the Deficit Reduction Act of 1984, Pub. L. 98-369,
sec. 91(a), 98 Stat. 494, 598. See, e.g., Seligman v.
Commissioner, 84 T.C. 191 (1985), affd. 796 F.2d 116 (5th Cir.
1986); Thielking v. Commissioner, T.C. Memo. 1987-201, affd.
without published opinion 860 F.2d 1084 (8th Cir. 1988) (both
holding under prior law that amounts paid at the inception of
equipment leases for lease administration and management services
were capital expenditures that must be amortized over the lease
term).
While the rule for identifying when prepaid service expenses
are incurred is clear, its application to the facts of these
cases is problematic. If it were known at the inception of the
contract that, for example, X percent of the services would be
provided in the first year and the remaining (100-X) percent in
the final year, then the rule would be applied by recognizing
proportional amounts of the expense for the first and final
years. If it were not known at the inception of the contract
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