121 T.C. No. 14
UNITED STATES TAX COURT
JIMMY D. WEAVER AND MARLENE M. MORLOC WEAVER,
Petitioners v. COMMISSIONER OF INTERNAL
REVENUE, Respondent
Docket No. 8262-01. Filed October 8, 2003.
P owned 80-percent interests in an S corporation
(CL) and a C corporation (J). CL is an accrual method,
calendar year taxpayer. J is a cash method, fiscal
year taxpayer with a July 31 yearend. On each of its
1996 and 1997 Federal income tax returns, CL deducted
an amount owed to J for services which J rendered to CL
during the corresponding year. J included in its gross
income for its taxable years ended in 1997 and 1998 the
amounts deducted by CL for 1996 and 1997, respectively.
CL had not as of Mar. 15, 1997 and 1998, paid to J any
of those amounts which J included in its gross income.
Held: CL fails the economic performance
requirement of sec. 461(h), I.R.C., as to its
deductions. That requirement, in conjunction with sec.
404(d), I.R.C., and the temporary regulations
thereunder, mandates that CL deduct each amount for its
taxable year the last day of which is within 2-1/2
months of the day on which the amount is includable in
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