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The parties agree that Clarkston may deduct the fees upon
its satisfaction of the all events test under section 461(h).1
The parties disagree as to whether Clarkston satisfied this test.
According to respondent, Clarkston fails this test in that it
does not meet the timing rule of section 404(d). Respondent
asserts that this rule must be met because the fees were for
services rendered, and the arrangement of Clarkston and J.D. as
to the payment for those services deferred the receipt of
compensation. Petitioners argue that the all events test has
been met. Petitioners in their brief rely solely on the first
two prongs of the all events test, discussed infra, and make no
reference to either section 404 or the economic performance
requirement of section 461(h).
Deductions under an accrual method of accounting are
generally allowable for the taxable year in which the all events
test has been met. This test is met when all events have
occurred that establish the fact of the liability, the amount of
the liability can be determined with reasonable accuracy, and
economic performance has occurred with respect to the liability.
Sec. 461(h); sec. 1.461-1(a)(2)(i), Income Tax Regs. Where a
1 Petitioners alleged in their petition that respondent had
disallowed the disputed amounts “on grounds including IRC
Sections 267, 404 and 461", and respondent in answer admitted
this allegation. Respondent in brief has abandoned his reliance
upon sec. 267 to support his determination and relies solely upon
secs. 404(d) and 461.
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Last modified: May 25, 2011