- 5 -
property. See Southwestern Hotel Co. v. United States, 115 F.2d
686, 688 (5th Cir. 1940); Main & McKinney Bldg. Co. v.
Commissioner, 113 F.2d 81, 81-82 (5th Cir. 1940), affirming a
Memorandum Opinion of this Court; Baton Coal Co. v. Commissioner,
51 F.2d 469, 470 (3d Cir. 1931), affg. 19 B.T.A. 169 (1930);
Grynberg v. Commissioner, 83 T.C. 255, 268-269 (1984); University
Properties Inc. v. Commissioner, 45 T.C. 416, 421 (1966), affd. 378
F.2d 83 (9th Cir. 1967); sec. 1.162-11(a), Income Tax Regs.
However, we have held that a cash-basis taxpayer may deduct prepaid
items when paid, including rent, if the taxpayer paid the rent
(i.e., did not make a mere deposit), had a “substantial business
reason for making the prepayment in the year” it was made, and the
prepayment did not “cause a material distortion in the taxpayer’s
taxable income in the year of prepayment.” See Grynberg v.
Commissioner, supra at 265-266.2 Petitioners contend that
petitioner had a substantial business reason for prepaying the rent
in 1992.
2. Whether Petitioner Had a Substantial Business Reason To
Prepay Rent in 1992
Petitioner testified and contends that he prepaid rent in 1992
to induce the landlord to agree to a below-market lease rate and to
2 We have also held that an accrual basis taxpayer may
deduct prepaid items that do not create a future benefit that is
more than incidental. See USFreightways Corp. v. Commissioner,
113 T.C. 329, 333 (1999). Petitioners do not contend that the
prepayment of rent did not create a future benefit that is more
than incidental.
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011