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Commissioner, 616 F.2d at 431 n.5, responded to the disallowance
of a current deduction for this lease as follows:
The accrual method of accounting, unlike the cash basis
method, aims to allocate to the taxable year expenses
attributable to income realized in that year. For this
reason, it was appropriate for the lessee in Bloedel’s
Jewelry, supra, to prorate to the next year that
portion of the rental payment which could be matched
with income realized in the next year.
A similar distinction between accrual and cash basis
taxpayers also arises in cases dealing specifically with the
deductibility of insurance expenses. Cash basis taxpayers
typically have been obligated to capitalize payments for
insurance with terms in excess of 1 year but, with respect to
insurance covering 1 year or less, have been permitted full
deduction in the year of payment. See, e.g., Commissioner v.
Boylston Market Association, 131 F.2d 966 (1st Cir. 1942), affg.
B.T.A. Memorandum Opinion dated Nov. 6, 1941; Bell v.
Commissioner, 13 T.C. 344 (1949); Peters v. Commissioner, 4 T.C.
1236 (1945); Jephson v. Commissioner, 37 B.T.A. 1117 (1938);
Kauai Terminal, Ltd. v. Commissioner, 36 B.T.A. 893 (1937). In
contrast, where the taxpayer utilizes the accrual method,
proration of premium expenses has been required, and no
distinction based upon policy length has been articulated. See,
e.g., Johnson v. Commissioner, 108 T.C. 448 (1997), affd. in part
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