George S. and Frela D. Beck - Page 6

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                    The 1866 Treaty simply does not provide                           
               petitioners with an express restriction on the ability                 
               of the United States to tax income.  There is no                       
               textual support for petitioners' contention.  Article                  
               10 plainly does not refer to an exemption from income                  
               tax, and we cannot create one by implication.                          
               [Citation omitted.]                                                    
          In the case at bar, petitioners argue that all of their income,             
          not only their rental income, is exempted by the same article of            
          the 1866 Treaty.                                                            
               We find that this issue is identical in all respects to the            
          issue decided in Beck I.  We therefore conclude that petitioners            
          are collaterally estopped from rearguing this issue.                        
               Accordingly, we hold that petitioners may not exclude their            
          income from taxation.  We have considered the remainder of                  
          petitioners' arguments, and we find them to be irrelevant or                
          without merit.                                                              
          II.  Deductibility of Reserve Account Deposits                              
               Pursuant to petitioners' loan agreement with the FmHA,                 
          petitioners deposited $3,873 and $3,760 into a reserve account              
          during 1992 and 1993, respectively.  Petitioners deducted these             
          amounts on their 1992 and 1993 Federal income tax returns.                  
          Respondent argues that deposits made into a reserve account are             
          not deductible until withdrawn and used to pay a deductible                 
          expense.  We agree with respondent.                                         
               A cash basis taxpayer generally may deduct business expenses           
          in the taxable year in which the expenses are paid.  Sec. 1.461-            

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