Here, the $4,520,000 of deferred payments to which Trinity claimed a deduction came due in 2003 and 2004; Flowers and FMT, the court noted, cannot be said to have withheld the deferred payments before they came due. Further, Section 461(f) allows a deduction only for the taxable year of the transfer. Consequently, the court stated, "even if we were to agree that the withheld payments represented transfers we would conclude that the transfers occurred in 2003 and 2004."
In any event, the court disagreed with Trinity's contention that the withholding of the deferred payments represented a transfer. It observed that before a taxpayer may transfer money "beyond its control," it must first have the money "within its control." In this case, however, the deferred payments were never in Trinity's control. Accordingly, no deduction under the authority of Section 461(f) was allowed to Trinity for its 2002 tax year. Thus, the disputed payments had to be accrued in 2002 and no offsetting deduction, available under the auspices of Section 461(f), could be claimed to offset this income.
Contributing editor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com.
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