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receiving and holding the funds. Petitioner thus had taxable
receipt of the income in 1992.
Petitioner’s Section 461(f) Deduction
After respondent withdrew his concession that the amounts
paid by United Ready Mixed to petitioner’s attorney’s trust
account did not constitute gross income to petitioner in 1992,
the Court asked respondent to address in a supplemental brief
whether petitioner is entitled under section 461(f) to a
deduction in 1992 for the amounts paid to petitioner’s counsel
and held in trust pending resolution of the attorney’s-fee
dispute.
Section 461(f) allows a deduction for amounts paid in
connection with a contested claim pending resolution of the
contest. It was enacted in response to cases holding that
accrual method taxpayers could not deduct amounts paid in
connection with contested liabilities because the fact of the
liability had not been established. United States v. Consol.
Edison Co., 366 U.S. 380 (1961); S. Rept. 830, 88th Cong., 2d
Sess. (1964), 1964-1 C.B. (Part 2) 502, 604. However, section
461(f) by its terms applies to both accrual and cash method
taxpayers. Weber v. Commissioner, 70 T.C. 52, 55 n.4 (1978)
(“Respondent initially asserted that this section [461(f)]
applies only to accrual and not cash basis taxpayers, but this
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