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b. Amount of the Liability
The amount of the liability must be determinable with
reasonable accuracy. Sec. 461(h)(4). Respondent argues that at
the end of 1999, there was disagreement as to the amount National
would be required to pay. We hold that any uncertainty that
remained as of December 31, 1999, was insufficient to preclude a
deduction for 1999.
The regulations address uncertainty as to the amount of a
liability as follows:
While no liability shall be taken into account before
economic performance and all of the events that fix the
liability have occurred, the fact that the exact amount
of the liability cannot be determined does not prevent
a taxpayer from taking into account that portion of the
amount of the liability which can be computed with
reasonable accuracy within the taxable year. For
example, A renders services to B during the taxable
year for which A charges $10,000. B admits a liability
to A for $6,000 but contests the remainder. B may take
into account only $6,000 as an expense for the taxable
year in which the services were rendered. [Sec. 1.461-
1(a)(2)(ii), Income Tax Regs.]
As discussed above, National acknowledged that it had an
obligation to F&D under the indemnity agreement. The litigation
and the related correspondence between F&D and National reflected
that there was disagreement about the total amount for which
National might be liable. However, the November 9, 1999, letter
shows that National admitted its obligation was over $2,500,000
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