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taxable year. Petitioner further argues that withholding payment
of a liability accrued in one taxable year pending the outcome or
occurrence of an event in a subsequent taxable year does not
reduce the accrual by the amount of the withheld payment.
Petitioner concludes that, because a delay in the payment of an
accrued liability does not delay its deductibility by an accrual
basis taxpayer, petitioner’s deduction for royalties owed to its
authors may not be reduced by the amounts withheld as a reasonable
reserve for returns.
Petitioner additionally argues that, because respondent’s
determination of deficiency is based upon the yearend financial
statement royalty reserve rather than upon the royalties that were
actually withheld from authors, it is "arbitrary and erroneous and
cannot be sustained".6
B. Analysis
1. Proper Royalty Accrual
In general, a liability may be taken into account for Federal
income tax purposes by an accrual method taxpayer in the taxable
year in which all the events have occurred that establish the fact
6 A finding that a determination of deficiency is arbitrary
and without foundation would not, in and of itself, require that
we grant petitioner’s motion for summary judgment. Rather, we
would be constrained to deny respondent’s motion for summary
judgment and require respondent to sustain what then would be
respondent’s burden of going forward with evidence to show the
correctness of the deficiency determination. See Helvering v.
Taylor, 293 U.S. 507 (1935); Shriver v. Commissioner, 85 T.C. 1,
3 (1985); Franklin v. Commissioner, T.C. Memo. 1993-184.
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