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461, a deduction allowed by section 162 "shall be taken for the
taxable year which is the proper taxable year under the method of
accounting used in computing taxable income." In the opening
brief, respondent asserts that petitioners used the cash basis to
determine UBTI. Petitioners have not objected to respondent's
assertion in their reply brief. However, based on the Forms 990,
it appears FSEP used the accrual method of accounting, and we
shall decide the issue accordingly.
Section 162 grants a deduction for ordinary and necessary
business expenses that are "paid or incurred during the taxable
year." Generally, a cash basis taxpayer may deduct business
expenses only in the taxable year in which the expenses are paid.
Sec. 1.461-1(a)(1), Income Tax Regs. An accrual basis taxpayer
generally may deduct expenses in the taxable year in which a
liability is incurred. Sec. 1.461-1(a)(2), Income Tax Regs. A
liability is incurred in the taxable year in which: (1) All the
events have occurred that establish the fact of the liability;
(2) the liability can be determined with reasonable accuracy; and
(3) economic performance has occurred with respect to the
liability. Id.; sec. 461(h).
We think that the transfer of "instant bingo" proceeds to an
organization's general fund is no more deductible than would be a
contribution to a reserve for future liabilities.
the case law has long followed the principle that a
contribution to a reserve for future liabilities is not
deductible; only actual payment out of the reserve to
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