Lane Constr. Corp. v. Commissioner

17 B.T.A. 826, 1929 BTA LEXIS 2230

Opinion

OPINION.

Van Fossan :

In Lane Construction Corporation, 4 B T. A. 1183, we considered the same facts and principles involved in the present proceeding and announced a conclusion adverse to petitioner. The addition of the testimony of an expert accountant that the reserves set up by the petitioner were in accordance with proper bookkeeping methods and standards does not lead us to modify that conclusion. We have held repeatedly that bookkeeping methods and entries must reflect true income in order to form a proper basis for determining income tax. Chatham & Phenix National Bank, 1 B. T. A. 460; Maney Milling Co,, 14 B. T. A. 1001.

The liability resulting from the death oí Emery was not such that the estimated amount thereof could be accrued in the year 1920, nor in the years 1921, 1922, or 1923. The liability of the petitioner was not definitely and finally determined and fixed until the agreement by it in 1924 to pay $75,000 as a compromise settlement. Until that time there was a possibility that the appellate court might vacate the judgment of the lower court and that ultimately the petitioner might be declared free from all liability ivhatever.

It is also well established that an actual liability incurred during the taxable year may be deducted, but that the deduction is not allowable so long as the liability is disputed or remains contingent. H. Northwood & Co., 4 B. T. A. 697; Lane Construction Corporation, supra; Farmers National Bank, 6 B. T. A. 1036; Frank J. Jewell, 6 B. T. A. 1040; Lehigh & Hudson River R. R. Co., 13 B. T. A. 1154. See, also, Consolidated Tea Co. v. Bowers, 19 Fed. (2d) 382; and Malleable Iron Range Co. v. United States, 62 Ct. Cls. 425. Therefore, the reserves set up by the petitioner during the years 1922 and 1923 are not deductible from its income for such years.

Decision will be entered for the respondent.