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binding and enforceable; the liability must not be contingent on
a future event; the amount of liability must be certain; and
there must be a reasonable belief on the part of the debtor that
the liability will be paid. Putoma Corp. v. Commissioner, 66
T.C. 652, 660 (1976), affd. 601 F.2d 734 (5th Cir. 1979); United
Control Corp. v. Commissioner, 38 T.C. 957, 967 (1962). We need
not dwell on this matter at length as petitioner failed to
demonstrate that Real McCoy incurred a binding and enforceable
liability.
During opening argument, respondent likened petitioners'
situation to those disallowed by section 267, in support of the
claim that Real McCoy's deduction should not be allowed until an
equal amount of income is recognized by Mack McCoy. Generally,
section 267 requires accrual basis taxpayers to defer deductions
for amounts payable to a related person, as specified in section
267(b), until such time as the amount is includable in the
recipient's gross income.
We need not make a determination as to whether petitioner’s
situation falls within the specified relationships found within
section 267(b).2 Section 1.267(a)-1(c), Income Tax Regs.,
reflects a general principle of tax law that no deduction is
2 Sec. 267(b) does not explicitly make reference to
transactions carried out by two proprietorships owned by a single
taxpayer, although the underlying rationale of sec. 267 appears
to be applicable.
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