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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not deductible until withdrawn and used to pay a deductible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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