Merlin A. and Dee D. Steger - Page 1

                                   113 T.C. No. 18                                    

                               UNITED STATES TAX COURT                                

                     MERLIN A. AND DEE D. STEGER, Petitioners v.                      
                     COMMISSIONER OF INTERNAL REVENUE, Respondent                     

               Docket No. 19824-98.                  Filed October 1, 1999.           

                         P, a lawyer, retired from the practice                       
                    of law in 1993.  That year, P purchased a                         
                    nonpracticing malpractice insurance policy                        
                    (the Policy) to cover him for an indefinite                       
                    period of time for acts, errors, or omissions                     
                    in professional services rendered before the                      
                    date of P's retirement.  Ps claimed a                             
                    Schedule C deduction for the entire cost of                       
                    the Policy on their 1993 return.  R                               
                    determined that the Policy is a capital asset                     
                    providing a substantial future benefit and                        
                    that Ps were only entitled to deduct 10                           
                    percent of the cost of the Policy in 1993.                        
                    Held:  Ps are entitled to deduct the entire                       
                    cost of the Policy in the year of termination                     
                    of P's business.                                                  
               James R. Monroe, for petitioners.                                      
               George W. Bezold and Christa A. Gruber, for respondent.                

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