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and revd. in part on other grounds 184 F.3d 786 (8th Cir. 1999);
Higginbotham-Bailey-Logan Co. v. Commissioner, 8 B.T.A. 566
(1927).
For instance, in Johnson v. Commissioner, supra, a taxpayer
employing the accrual method purchased insurance policies
covering periods of 1 to 7 years. Given this scenario, the Court
made no attempt to ascertain which of the policies, such as those
covering only 1 year, would expire within the following taxable
year. Instead, the Court ruled that “to the extent that part of
any Premium was allocable to coverage for subsequent years, it
must be capitalized and amortized by deductions in those years.”
Id. at 488. Likewise, in Higginbotham-Bailey-Logan Co. v.
Commissioner, supra, the Court disallowed a deduction for prepaid
insurance taken by an accrual basis taxpayer without inquiring
into whether the policy might terminate within the next year.
The Court resolved the issue by stating: “The adjustment made by
the Commissioner appears to be in accordance with the method of
accounting employed by the petitioner and appears further to be
such that petitioner’s net income is more nearly correctly
reflected than on the basis used in the return.” Id. at 577.
Hence, beginning as early as 1927 and followed as recently as
1997, reported cases have indicated that an accrual basis
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