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is noteworthy that no such liability was reflected on Wright &
Associates’ books and tax return.21 Nor was any liability
attributable to Ms. Mohr’s claim properly deductible for 1999 by
the corporation, or by petitioners, under either the cash or
accrual method of accounting. Under the cash method, no
deduction should have been recognized until an amount was paid to
Ms. Mohr. In 1999, no payment by Wright & Associates or Mr.
Wright was made to Ms. Mohr.
Under the accrual method, the all events test for
liabilities was not satisfied in 1999 for Ms. Mohr’s claim
against Mr. Wright, and there was never a claim against Wright &
Associates. Ms. Mohr did not make a demand for the return of her
invested funds from Mr. Wright until January of 2000, did not
file a formal claim with NASD until May 2000, and did not have a
fixed legal right to the return of her invested funds until the
dispute was resolved in 2002.
Mr. Wright seeks in the alternative to justify the $50,000
deduction for 1999 as an accrued liability of his own, for which
he allegedly made a reserve. Mr. Wright was not entitled to
21On Wright & Associates’ 1999 Form 1120S, $50,000 was
improperly included in the $53,485 return and allowance amount
listed on line 1(b), which was subtracted from gross receipts or
sales on line 1(a). The notice of deficiency disallowed $50,000,
reducing the return and allowance amount to $3,485 and
eliminating the $50,000 alleged loan from Mr. Wright shown on
Wright & Associates’ books.
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