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deductions, may be deducted in the year the taxpayer's business
ceases to operate); see generally sec. 336 (corporate taxpayer
entitled to recognize loss in the year of liquidation); sec. 195
(allowing a taxpayer to deduct the unamortized portion of
deferred startup expenditures for the year in which the trade or
business is completely disposed of). Here, respondent does not
contend that the cost of the Policy is not a necessary expense.
Rather, respondent contends that the cost of the Policy is not
"ordinary" because it is a capital expenditure given its
indefinite useful life. However, even if we assume that the
Policy is a capital asset, petitioners are nevertheless entitled
to deduct the cost of the Policy in the year in issue. The
Policy has no ascertainable useful life but rather is an
intangible asset providing petitioner with malpractice coverage
for an indefinite term of years. Although as a capital asset
with an indefinite useful life the Policy would not be currently
deductible, it is deductible upon dissolution of petitioner's
business. See INDOPCO, Inc. v. Commissioner, supra at 83-84.
Thus, even if the Policy is a capital asset, because petitioner
purchased the Policy in the same year that he ceased to operate
his business, petitioners are entitled to deduct the cost of the
Policy in that year.
In contrast, if we assume that the Policy is not a capital
asset, then the cost of the Policy would be deductible as an
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Last modified: May 25, 2011