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Petitioners contend that, based on the definition of
"incurred" set out above, they have incurred the full attorney's
fees and costs in this matter. We disagree. Petitioners'
liability for fees and costs in this matter is contingent because
petitioners are liable for reasonable fees and costs, if any, not
paid to the law firm by the SEBA Plan. If the liability to pay
the item of expense is contingent upon the happening of a
subsequent event, the item cannot be regarded as incurred until
the year in which the occurrence of the event causes the
contingent liability to become an absolute one. See Pierce
Estates, Inc. v. Commissioner, 195 F.2d 475, 477 (3d Cir. 1952),
revg. 16 T.C. 1020 (1951).
Any liability petitioners have for fees and costs is
contingent on the subsequent event of the nonpayment of fees and
costs by the SEBA Plan to the law firm. As of December 30, 1998,
the SEBA Plan paid $102,659 of the $116,449 billed in this
matter. As of that date, petitioners' contingent liability was
in the amount of $13,790 (the difference between the amount
billed by the law firm and the amount paid by the SEBA plan).
This liability is not "incurred" until the subsequent event of
nonpayment by the SEBA plan.
Petitioners assert in their affidavits that they retained
the law firm, through the SEBA Plan, to represent them. The fact
that petitioners may have retained and were represented by
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