Question

In: Accounting

Apply the contested liability rule to a taxpayer in the normal course of business.

Apply the contested liability rule to a taxpayer in the normal course of business.

Solutions

Expert Solution

The contested liability rule to a taxpayer in the normal course of business:

The taxable year of the deduction is depending upon the following factors:

  • An asserted liability is contested to the tax payers.
  • The satisfaction of this asserted liability is made through transfer of money or other property.
  • At the time of transfer the amount of asserted liability is exist.
  • A deduction of the taxable is allowed at the time of transfer of the asserted liability.

If these are fulfilled then the deduction of the asserted liability is allowed in the taxable year of transfer.

The exception of this rule is applicable in case of deduction of income, war profits and excess profits on which the taxes are imposed by any foreign authority or United States’ possession.

If any portion is deducted of the contested liability amount, then the excess amount of deduction will be settled or refunded. But this refund amount is considered at the time of calculating the total income in the year of receipt of such amount.

References

26 CFR 1.461-2 - Contested liabilities.. (2018). LII / Legal Information Institute. Retrieved 23 January 2018, from https://www.law.cornell.edu/cfr/text/26/1.461-2

Quantitative guidelines: guidance based on professional pronouncements. (Accounting). (2018). Archives.cpajournal.com. Retrieved 22 January 2018, from http://archives.cpajournal.com/old/14038930.htm

ekkarill92 answered 2 years ago
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