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172(f)(1)(B). In rejecting the taxpayer’s contention that its
accounting and legal fees arose under Federal law, we stated:
It is true that the 1934 Act, ERISA, and the Internal
Revenue Code require petitioners to file financial
reports and disclosure statements, maintain and provide
books and records, and cooperate with IRS audits.
However, those provisions do not establish petitioners’
liability to pay the amounts at issue. Petitioners’
liability to pay those amounts did not arise until
petitioners contracted for and received the services.
Petitioners’ choice of the means of compliance, and not
the regulatory provisions, determined the nature and
amount of their costs. If, on the other hand,
petitioners had failed to comply with the auditing and
reporting requirements or had not obtained the
particular services in issue here, their liability
would have been in amounts not measured by the value of
services. Thus, petitioners’ liability did not arise
under Federal law. [Sealy Corp. v. Commissioner, 107
T.C. at 184.]
Our holding in Sealy Corp. v. Commissioner, supra, was
affirmed by the Court of Appeals for the Ninth Circuit on the
ground that the disputed expenses did not constitute “a liability
arising out of a Federal or State law”. The court stated in
pertinent part:
It is, therefore, not simply an expense incurred with
respect to an obligation under federal law but an act
“giving rise” to the liability that qualifies as a
specified liability under the statute. The act giving
rise to each of the liabilities in question was the
contractual act by which Sealy engaged lawyers or
accountants. In each of these instances the act did
not occur at least three years before the beginning of
the taxable year.
Sealy’s argument essentially is that the act
giving rise to the liability is the first event in a
chain of causes which gives rise to the liability. The
argument leads to a reductio ad absurdum. The
organization of the company gave rise to an obligation
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