Jimmy D. and Marlene M. Morloc Weaver - Page 6

                                                - 6 -                                                   

                  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.                                                                       





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  Next

Last modified: May 25, 2011