Publisher's Synopsis
Excerpt from Staff Data on Sections 462 and 452 of the Internal Revenue Code of 1954: Prepared for the Committee on Finance of the U. S. Senate
Under the 1939 law deductions for expenses and losses incurred by a taxpayer could be taken only when all events had occurred which fixed the fact and the amount of the taxpayer's liability.
The 1954 Code permits an accrual - basis taxpayer to deduct reason. Able additions (in the discretion of the Secretary or his delegate) to reserves for various types of estimated expenses. The probable future expenses must be related to income taxed during the current year or to income of preceding years for which reserves for estimated expenses have been established, must be such as would be allowable deductions, and must be such as-the Secretary or his delegate is satisfied can be estimated 'with reasonable accuracy. A reserve is to be considered reasonably estimated when it is based on reliable data or statistical experience of the taxpayer or of others in similar circumstances. Re serves for general contingencies, indefinite future losses, or for amounts in litigation do not fall in this category.
At the end of each year these reserves are to be adjusted to re?ect the best estimate currently available; any amount by which a reserve is found to be excessive is to be taken into account in the year of determination.
Estimated expenses do not include any deduction attributable to income reported in a taxable year beginning before the benefits of this provision were elected, to deductions with respect to prepaid income which the taxpayer has elected to defer, or to deductions for bad debts.
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