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For accrual basis taxpayers such as petitioners, a liability
is incurred in the taxable year in which all events have occurred
that establish the fact of the liability, the amount of the
liability can be determined with reasonable accuracy, and
economic performance has occurred with respect to the liability.
See secs. 1.446-1(c)(1)(ii)(A), 1.461-1(a)(2), Income Tax Regs.
With respect to economic performance, the regulations provide
that where the liability arises out of the provision of insurance
to the taxpayer, economic performance occurs when payment is made
to the insurer. See sec. 1.461-4(g)(5), Income Tax Regs.
Section 1.461-1(a)(2), Income Tax Regs., further provides
that while a liability is generally taken into account for
Federal income tax purposes in the taxable year in which it is
incurred, the Internal Revenue Code and income tax regulations
provide exceptions to the general rule, including where
capitalization is required.
Applicable provisions of the Code, the Income Tax
Regulations, and other guidance published by the
Secretary prescribe the manner in which a liability
that has been incurred is taken into account. For
example, * * * under section 263 or 263A, a liability
that relates to the creation of an asset having a
useful life extending substantially beyond the close of
the taxable year is taken into account in the taxable
year incurred through capitalization (within the
meaning of � 1.263A-1(c)(3)), and may later affect the
computation of taxable income through depreciation or
otherwise over a period including subsequent taxable
years, in accordance with applicable Internal Revenue
Code sections and guidance published by the Secretary.
* * * [Sec. 1.461-1(a)(2)(i), Income Tax Regs.]
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