TAX FILE

Dec. 1, 2001
Many carriers that use the accrual method of accounting deduct the full cost of fees, licenses and insurance premiums when paid, even though the charges may cover activity that occurs partly in the next tax year. The IRS challenged U.S. Freightways' use of this accounting practice, and the Tax Court agreed. In a big win for carriers, the U.S. Court of Appeals for the 7th Circuit agreed with U.S. Freightways

Many carriers that use the accrual method of accounting deduct the full cost of fees, licenses and insurance premiums when paid, even though the charges may cover activity that occurs partly in the next tax year. The IRS challenged U.S. Freightways' use of this accounting practice, and the Tax Court agreed.

In a big win for carriers, the U.S. Court of Appeals for the 7th Circuit agreed with U.S. Freightways and overturned the earlier rulings. For now, the decision affects only taxpayers in the midwestern states covered by the 7th Circuit. The IRS could appeal to the full court or the Supreme Court, but this is still a valuable precedent.

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KEN SIMONSON

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