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year accordingly. However, petitioners have not shown that B&W
was reimbursed in an amount greater than that conceded by
respondent for fiscal year 1996.
Petitioners contend that respondent’s disallowance of B&W’s
deduction of those costs would have the effect of improperly
putting B&W on the accrual method of accounting. We disagree.
Although cash-basis taxpayers may deduct business expenses in the
taxable year paid, the costs advanced by B&W for its clients were
in the nature of reimbursable loans and were not deductible.
Respondent’s disallowance of those deductions did not put B&W on
the accrual method of accounting.
Petitioners claim that they may deduct as business expenses
amounts advanced on behalf of clients just as farmers may deduct
their expenses for fertilizers, chemicals, and fuel. We
disagree. Tax rules for farmers do not make B&W’s payment of
client costs deductible.
Petitioners contend that respondent permitted B&W to deduct
as business expenses advances for client costs in prior years,
and claim that its identical treatment of client costs during the
years in issue must similarly be accepted. We disagree. First,
petitioners offered no evidence of a prior examination or audit
of B&W’s tax returns and thus have not shown that respondent
allowed B&W to deduct client advances in prior years. Second,
respondent is not precluded from raising an issue even if
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