George S. and Frela D. Beck - Page 7

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          1(a)(1), Income Tax Regs.  It is a well-established principle               
          that a contribution to a reserve account for future liabilities             
          is not deductible.  See Sebring v. Commissioner, 93 T.C. 220                
          (1989); World Airways, Inc. v. Commissioner, 62 T.C. 786 (1974);            
          Commercial Liquidation Co. v. Commissioner, 16 B.T.A. 559 (1929).           
          The contribution may become deductible once it is withdrawn and             
          used to pay a definite liability.  See Sebring v. Commissioner,             
          supra at 225.                                                               
               None of the deposits into the reserve account were withdrawn           
          and used to pay deductible expenses during 1992 or 1993.  We                
          therefore conclude that petitioners are not entitled to                     
          deductions for their deposits into the reserve account for 1992             
          or 1993.                                                                    
          III.  Section 6673 Penalty                                                  
               Section 6673(a)(1) provides that, whenever it appears to the           
          Tax Court that proceedings have been instituted or maintained by            
          the taxpayer primarily for delay or that the taxpayer's position            
          in such proceedings is frivolous or groundless, the Court may               
          impose a penalty not in excess of $25,000.  A petition to the Tax           
          Court is frivolous "if it is contrary to established law and                
          unsupported by a reasoned, colorable argument for change in the             
          law."  Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986).            
          Based on well-established law, petitioners' positions are                   
          frivolous and groundless.                                                   

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