- 10 -
the expense was paid or incurred; (2) that it was paid or
incurred during the taxable year in issue; (3) that it was paid
or incurred in carrying on a trade or business; and (4) that the
expense was ordinary and necessary. Sec. 162; sec. 1.162-1,
Income Tax Regs. Petitioners did not pay or incur any additional
insurance expenses in the year ended January 26, 1990. All of
the claimed amounts were paid in years prior to the year ended
January 26, 1990, with regard to insurance contracts entered into
and in effect in those prior years. See sec. 461(a).
Petitioners made no economic outlay and incurred no liability in
the year ended January 26, 1990, that would give rise to a
deduction. Therefore, no deduction is allowed under section
162(a).
Both parties have argued at length about whether or not
certain of the transactions entered into by petitioners and
Hanseatic and Eagle, respectively, were "insurance" for tax
purposes. We need not decide whether the transactions
constituted insurance because nothing occurred in the year ended
January 26, 1990, that would entitle petitioners to a deduction
even if the transactions were "insurance".
Petitioners have also argued that, in order to portray the
economic realities of the splitup, a deduction must be allowed.
Disallowance of the claimed deduction, however, reflects the
following economic realities: Petitioners previously made
payments to related insurance companies for which deductions were
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011