TIMING OF DEDUCTIONS IN CERTAIN CASES WHERE ASSERTED LIABILITIES ARE CONTESTED.

SEC. 223. TIMING OF DEDUCTIONS IN CERTAIN CASES WHERE ASSERTED LIABILITIES ARE CONTESTED. (a) Taxable Year of Deduction.— (1) Section 461 (relating to general rule for taxable year of deduction) is amended by adding at the end thereof the following new subsection: “(f) Contested Liabilities.—If— “(1) the taxpayer contests an asserted liability, “(2) the taxpayer transfers money or of her property to provide for the satisfaction of the asserted liability, “(3) the contest with respect Io the asserted liability exists after the time of the transfer, and “(4) but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer (or for an earlier taxable year), then the deduction shall be allowed for the taxable year of the transfer. This subsection shall not apply in respect of the deduction for income, war profits, and excess profits faxes imposed by the authority of any foreign country or possession of the United States.” (2) Section 43 of the Internal Revenue Code of 1939 (relating to period for which deductions and credits taken) is amended by adding at the end thereof the following new sentences; “If— “(1) the taxpayer contests an asserted liability, “(2) the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability, “(3) the contest with respect to the asserted liability exists after the time of the transfer, and “(4) but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer (or for an earlier taxable year), then the deduction shall be allowed for the taxable year of the transfer. The preceding sentence shall not apply in respect of the deduction for income, war profits, and excess profits taxes imposed by the authority of any foreign country or possession of the United States.” (b) Effective Dates.—Except as provided in subsections (c) and (d)— (1) the amendment made by subsection (a)(1) shall apply to taxable yen is beginning after December 31, 1953, and ending after August 16, 1954, and (2) the amendment made by subsection (a)(2) shall apply to taxable years to which the Internal Revenue Code of 1939 applies. (c) Election as to Transfers in Taxable Years Beginning Before January 1, 1964.— (1) The amendments made by subsection (a) shall not apply to any transfer of money or other property described in subsection (a) made in a taxable year beginning before January 1, 1964, if the taxpayer elects, in the manner provided by regulations prescribed by the Secretary of the Treasury or his delegate, to have this paragraph apply. Such an election— (A) must be made within one year after the date of the enactment of this Act, 78 Stat. 77 (B) may not be revoked after the expiration of such one-year period, and (C) shall apply to all transfers described in the first sentence of this paragraph (other than transfers described in paragraph (2)). In the case of any transfer to which this paragraph applies, the deduction shall be allowed only for the taxable year in which the contest with respect to such transfer is settled. (2) Paragraph (1) shall not apply to any transfer if the assessment of any deficiency which would result from the application of the election in respect of such transfer is, on the date of the election under paragraph (1), prevented by the operation of any law or role of law. (3) If the taxpayer makes an election under paragraph (I), and if, on the date of such election, the assessment of any deficiency which results from the application of the election in respect of any transfer is not prevented by the operation of any law or rule of law, the period within which assessment of such deficiency may be made shall not expire earlier than 2 years after the date of the enactment of this Act. (d) Certain Other Transfers in Taxable Years Beginning Before January 1, 1964.—The amendments made by subsection (a) shall not apply to any transfer of money or other property described in subsection (a) made in a taxable year beginning before January 1, 1964, if— (1) no deduction has been allowed in respect of such transfer for any taxable year before the taxable year in which the contest, with respect to such transfer is settled, and (2) refund or credit of any overpayment which would result from the application of such amendments to such transfer is prevented by the operation of any law or rule of la w. In the case of any transfer to which this subsection applies, the deduction shall be allowed for the taxable year in which the contest with respect to such transfer is settled.