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OPINION
Accrual of DRR Costs Under the All-Events Test of Section 461
For Federal income tax purposes during the years in
issue, an accrual basis taxpayer generally may accrue costs
not yet paid in the year in which the costs satisfy the two-
pronged all-events test of the accrual method of tax
accounting; i.e., in the year in which all the events occur
that establish the fact of the taxpayer’s liability for the
costs and in which the amount of the liability can be
determined with reasonable accuracy. See United States v.
General Dynamics Corp., 481 U.S. 239, 243-244 (1987); United
States v. Hughes Properties, Inc., 476 U.S. 593, 600 (1986);
United States v. Anderson, 269 U.S. 422, 437-438 (1926); sec.
1.446-1(c)(1)(ii), Income Tax Regs.
As the Supreme Court has explained:
It is fundamental to the “all events” test that,
although expenses may be deductible before they have
become due and payable, liability must first be
firmly established. This is consistent with our
prior holdings that a taxpayer may not deduct a
liability that is contingent * * *. [United States
v. General Dynamics Corp., supra at 243.]
The all-events test also applies under section 1012 to
the accrual into the tax bases of capital assets of estimated
future capital costs. See Denver & Rio Grande W. R.R. v.
United States, 205 Ct. Cl. 597, 505 F.2d 1266 (1974); La Rue
v. Commissioner, 90 T.C. 465 (1988); Seaboard Coffee Serv.,
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