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entitle an accrual-basis taxpayer to deduct it under section
162(a) is governed by the “all events” test as set out in United
States v. Anderson, 269 U.S. 422, 441 (1926). In Anderson, the
Supreme Court held that a taxpayer was entitled to deduct from
its 1916 income a tax on profits from munitions sales that took
place in 1916. Although the tax would not be assessed and
therefore would not formally be due until 1917, all the events
had occurred in 1916 to fix the amount of the tax and to
determine the taxpayer's liability to pay it. The all events
test is now embodied in section 1.461-1(a)(2), Income Tax Regs.,
which provides: “Under an accrual method of accounting, an
expense is deductible for the taxable year in which all the
events have occurred which determine the fact of the liability
and the amount thereof can be determined with reasonable
accuracy.”2 See United States v. General Dynamics Corp., 481
U.S. 239, 242-243 (1987).
Thus, under the regulations, the all events test has two
prongs, each of which must be satisfied before accrual of an
2While it is not relevant to our decision of whether or not
the first prong of the all events test has been met, we note that
the enactment of sec. 461(h)(1) provides that the all events test
shall not be treated as met any earlier than when economic
performance occurs. Under sec. 461(h), not only must both prongs
of the all events test be met, but, additionally, economic
performance must have occurred. Generally sec. 461(h) applies
“to liabilities that would, under the law in effect before the
enactment of section 461(h), be allowable as a deduction or
otherwise incurred after July 18, 1984.” Sec. 1.461-4(k), Income
Tax Regs.
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