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Mrs. Andrews by the amount of Mrs. Andrews’ obligation
to Met Life. The payments which Mrs. Andrews received
are properly taken into account in the years in which
she received them. There was no constructive
restoration to Met Life in 1987 or any subsequent year,
as no out-of-pocket payment was made. [Id.; see also
Chernin v. United States, 149 F.3d at 816.]
Petitioner argues that section 1.461-4(g)(3), Income Tax
Regs., allows for a refund by means of a setoff to qualify as a
section 162 deductible expense. That section reads in pertinent
part:
(3) Rebates and refunds. If the liability of a
taxpayer is to pay a rebate, refund, or similar payment
to another person (whether paid in property, money, or
as a reduction in the price of goods or services to be
provided in the future by the taxpayer), economic
performance occurs as payment is made to the person to
which the liability is owed. This paragraph (g)(3)
applies to all rebates, refunds, and payments or
transfers in the nature of a rebate or refund
regardless of whether they are characterized as a
deduction from gross income, an adjustment to gross
receipts or total sales, or an adjustment or addition
to cost of goods sold. In the case of a rebate or
refund made as a reduction in the price of goods or
services to be provided in the future by the taxpayer,
“payment” is deemed to occur as the taxpayer would
otherwise be required to recognize income resulting
from a disposition at an unreduced price. * * *
[Emphasis added.]
This regulation does not assist petitioner, because there is
no liability of petitioner to repay its customers. Petitioner
reduced rates in accordance with ARAM, but, as set forth above,
it was unable to show that it was compensating its customers for
prior overcollections. In addition, section 1.461-4(g)(3),
Income Tax Regs., was not in effect for the years in issue. It
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