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a. Fact of Liability
For an item to be deductible, the fact of liability must be
“firmly established”, “fixed and certain”, and “fixed and
absolute”. Colonial Wholesale Beverage Corp. v. Commissioner,
T.C. Memo. 1988-405 (and cases cited therein), affd. 878 F.2d 23
(1st Cir. 1989). It is well established that liabilities may not
be accrued while they are still contingent. Vastola v.
Commissioner, 84 T.C. 969, 977 (1985) (and cases cited therein).
However, a contingency limited to the timing of the required
payment may not prevent an item from satisfying the all-events
test. Restore, Inc. v. Commissioner, supra (citing United States
v. Hughes Props., Inc., 476 U.S. 593, 604 (1986)). Respondent
contends that the litigation and the related correspondence
between National and the other litigants indicate that the
liability remained in dispute into 2000 and thus remained
contingent on December 31, 1999.
Respondent is correct to the extent that the correspondence
between F&D and National before October 18, 1999, reflected a
continuing dispute regarding whether National was liable to F&D
under the indemnity agreement, and that National was making a
settlement offer in hopes of avoiding litigation. Contrary to
respondent’s contention, however, all of the correspondence
beginning with the October 18, 1999, letter, indicates that
National recognized an obligation to F&D under the indemnity
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Last modified: May 25, 2011