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Petitioner retired from the practice of law in 1993. During
that year, he was insured against malpractice under a lawyer's
professional liability insurance policy. On December 22, 1993,
he exercised an option under this policy to purchase
nonpracticing malpractice insurance coverage (the Policy) for the
amount of $3,168. The nonpracticing insurance covered him for an
indefinite period of time "but only by reason of an act, error or
omission in professional services rendered before
* * * [his] date of retirement or termination of private
practice".
On their 1993 return, petitioners claimed a Schedule C
deduction for the entire cost of the Policy. Respondent
determined that the Policy was a capital asset and that
petitioners were entitled to deduct only 10 percent of the cost
of the Policy for the year in issue.
OPINION
Respondent contends that petitioners are not entitled to
deduct the entire cost of the Policy on their 1993 return because
the Policy possesses "a useful life of indefinite duration beyond
one year." Respondent therefore asserts that the Policy is a
capital asset and that petitioners are entitled to deduct the
cost of the Policy only over its useful life. In this regard,
respondent determined that petitioners were entitled to deduct 10
percent of the cost of the Policy during the year in issue.
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