- 15 -
within the meaning of section 162, and we so hold. See
Commissioner v. Heininger, 320 U.S. 467 (1943).
Respondent also argues that petitioner is not entitled to
deduct the face amount of the note to Krieger on the ground that
all of the events had not occurred which determine the fact of
liability and because the value of the note could not have been
determined with reasonable accuracy (the “all events test”).
Respondent also relies on section 461(h)(1), arguing that it
would apply to limit the deductible amount, even if the all
events test is met, to an amount for which economic performance
has been met.7
There is no dispute that petitioner and November were
obligated to Krieger on a note in the face amount of $1.5 million
and that Krieger had successfully prosecuted petitioner’s
litigation to a conclusion (settlement) during the taxable year.
There was no performance left on the part of Krieger, and
petitioner and November were obligated to make payment.
Petitioner and November, however, were not required to make
payments on the note unless the bingo operation was profitable.
Further, the note did not have a fixed payment date and could
7 In addition, respondent argues that sec. 1.461-1(a)(1),
Income Tax Regs., prohibits the deduction of any expenditure
which results in the creation of an asset having a useful life
extending beyond the close of the taxable year. Because we have
decided that the litigation did not result in the creation of an
new asset, we need not address the effect of the cited
regulation.
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