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Home and Miele, the beneficial interest in the funds on deposit
was retained by the taxpayer’s clients. Thus, these cases are
distinguishable.
Petitioner directs his next argument to both the Charleston
County Court account and the U.S. District Court account. He
argues that section 461(f) applies, authorizing deductions for
the amounts on deposit. Section 461(f) provides as follows:
SEC. 461(f). Contested Liabilities.--If--
(1) the taxpayer contests an asserted
liability,
(2) the taxpayer transfers money or
other property to provide for the
satisfaction of the asserted liability,
(3) the contest with respect to the
asserted liability exists after the time of
the transfer, and
(4) but for the fact that the asserted
liability is contested, a deduction would be
allowed for the taxable year of the transfer
(or for an earlier taxable year) determined
after application of subsection (h),
then the deduction shall be allowed for the taxable
year of the transfer. This subsection shall not apply
in respect of the deduction for income, war profits,
and excess profits taxes imposed by the authority of
any foreign country or possession of the United States.
The fundamental problem with petitioner’s argument is that
section 461(f) does not by itself create a deduction; it only
affects timing. That is, it applies only to a deduction
otherwise allowed. See sec. 461(f)(4). But here, because of
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