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pay the accrued royalties was established during each year in
which they were accrued and only the time of payment was
contingent.
The standard for determining whether an accrual basis
taxpayer has incurred a deductible expense for Federal income tax
purposes is governed by the "all events test." See United States
v. General Dynamics Corp., 481 U.S. 239, 242 (1987); United
States v. Hughes Properties, Inc., 476 U.S. 593, 600-601 (1986);
Putoma Corp. v. Commissioner, 601 F.2d 734, 738 (5th Cir. 1979),
affg. 66 T.C. 652 (1976). Under the Regulations, the "all
events" test has two elements, each of which must be satisfied
before accrual of an expense is proper. First, all the events
which establish the fact of the liability must have occurred.
Second, the amount must be capable of being determined "with
reasonable accuracy." United States v. Hughes Properties, Inc.,
supra at 600; sec. 1.446-1(c)(1)(ii), Income Tax Regs.5
5In the Deficit Reduction Act of 1984, Congress incorporated
the "all events" test into the Internal Revenue Code by adding a
new sec. 461(h). Pub. L. 98-369, sec. 91(a), 98 Stat. 598, 607.
Sec. 461(h)(4) provides that the "all events test" is met "with
respect to any item if all events have occurred which determine
the fact of liability and the amount of such liability can be
determined with reasonable accuracy." Sec. 461(h)(1) limits the
applicability of the test by providing that it is not met until
"economic performance" occurs. See United States v. General
Dynamics Corp., 481 U.S. 239, 243 n.3 (1987). In light of our
conclusion, infra, that petitioner has failed to satisfy the "all
events" test, we need not consider the applicability of the
economic performance requirement.
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