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The benefits which ACC will reap from the installment contracts;
namely, interest and excess principal income,17 will not be
realized and exhausted within the year of payment. ACC will
realize those benefits in each of the later years in which the
interest and excess principal are received. Given the Supreme
Court’s observation in INDOPCO, Inc. v. Commissioner, supra at
83-84, that our tax law endeavors to measure taxable income by
allowing expenses to be deducted in the taxable year in which the
related income is recognized, see also Newark Morning Ledger Co.
v. United States, 507 U.S. 546, 565 (1993); Hertz Corp. v. United
States, 364 U.S. 122, 126 (1960), it is only appropriate to defer
ACC’s deduction of its payment of any expenses directly related
to that interest or excess principal income to the years in which
ACC recognizes the income.18 Only then will ACC’s taxable income
be calculated more accurately for tax purposes than if ACC had
deducted those expenses currently.
We find instructive to our decision the case of Helvering v.
Winmill, 305 U.S. 79 (1938), revg. 93 F.2d 494 (2d Cir. 1937),
17 We use the term “excess principal” to refer to the
principal on the installment contracts that exceeded 65 percent
of their face value.
18 The salaries and benefits were instrumental to the
production of that income in that ACC would not have acquired any
of the installment contracts without performing its credit
analysis activities. In this regard, we disagree with the amicus
representing FNMA that all of ACC’s salaries and benefits are
indirect expenses to which sec. 263(a) does not apply in the
first place.
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