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within 3 years of January 1, 1992, does not satisfy the
definition of a specified liability loss.
In Sealy Corp. v. Commissioner, supra, the taxpayer incurred
certain costs during the period 1989 through 1992 including:
(1) $1,808,309 paid to an accounting firm to comply with
reporting, filing, and disclosure requirements imposed by the
Securities and Exchange Act of 1934, ch. 404, 48 Stat. 881,
currently codified at 15 U.S.C. secs. 77-78 (1994); (2) $100,650
paid to an accounting firm to examine and prepare financial
statements regarding its employee benefit plans as required under
the Employee Retirement Income Security Act of 1974 (ERISA), Pub.
L. 93-406, 88 Stat. 829; and (3) $567,974 paid for accounting and
legal services relating to an IRS audit of its 1987 tax return.
The taxpayer considered the costs to be specified liability
losses and filed an amended tax return for 1985 on which it
claimed the costs as a loss carryback pursuant to section
172(b)(1)(C). The Commissioner issued a notice of deficiency to
the taxpayer disallowing the loss carryback.
In Sealy, we sustained the Commissioner’s determination that
the disputed costs did not constitute specified liability losses
within the meaning of section 172(f)(1)(B) because the disputed
costs were not incurred “with respect to a liability which arises
under a Federal or State law” as expressly mandated by section
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