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In a letter dated May 9, 1996, the Nortons requested reimbursement
for the following expenses from the controlled savings account:
Vendor Description Amount
GeoCHEM, Inc. Pit liner $1,987.50
Weld-Air Angle iron and welding rod 359.00
Brad Zweifel Co. Soil removal 414.00
Knapp Enterprises Soil removal 414.00
Total 3,174.50
The requested amount was released to the Nortons. They paid off
the NBA loan in 1999. At the time the loan was satisfied, the
controlled savings account had a balance of $6,000 to $8,000; this
amount was released to the Nortons.
Upon the advice of Mrs. Crockett, the Nortons offset their
1993 Schedule E income with a $15,000 deduction for environmental
cleanup expenses. Respondent disallowed the claimed deduction.
Before a taxpayer is allowed a current deduction, a claimed
expense must be paid or incurred. The Nortons are cash method
taxpayers, and under such method expenses are deductible or
capitalized only after such expenses have been actually paid. See
sec. 1.461-1(a)(1), Income Tax Regs.
The Nortons did not incur or pay any environmental cleanup
expenses in 1993.2 Rather, they merely made a deposit into a
controlled savings account. (The purpose of the controlled account
2 Because the Nortons did not make any expenditures for
environmental cleanup costs in 1993, the question of whether such
costs would be currently deductible is moot.
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