Homework SourseProvide an example of the contested liability rule related t
Provide an example of the contested liability rule related to a taxpayer in the normal course of business.
Provide an example of the contested liability rule related to a taxpayer in the normal course of business.
Solution
Example
X is a calendar year taxpayer and uses accrual method of accounting. He had a $2500 asserted liability in 2016 for maintenance work completed in that year. He contests the asserted liability and finally settles it in 2017 for the full $2500. He then pays the $2500 in March 2018. As he did not make the payment until after the contest was settled, the liability accrues only in 2017 and can be deducted only in 2017.
