Treas. Reg. § 1.461-1(a)(2) (1984). The government argues that even though the Claims Court decision may be supported by the law of another circuit, Kaiser Steel Corp. v. United States, 717 F.2d 1304 (9th Cir. 1983), it is in conflict with the law of this circuit as expressed in Eastman Kodak Co. v. United States, 534 F.2d 252, 209 Ct.Cl. 365 (1976). We believe the government's interpretation of Eastman Kodak is unwarranted.

Texaco-Cities Service Pipe Line Co v United States supra [170 F. Supp. 644, 645]: Helvering v Russian Finance & Construction Corp 77 F.2d 324, 327 (2d Cir. 1935). In Eastman Kodak Co v United States 209 Ct. Cl. 365, 370-378, 534 F.2d 252, 256-260 (1976), the Court of Claims reached a similar result in a case involving the FICA tax which, during the year there at issue, subjected only the first $4,800 of an employee's annual compensation to tax. In disallowing the claimed payroll tax deduction, the court stated (534 F.2d at 260):

In Eastman Kodak Co. v. United States, 209 Ct. Cl. 365, 370-378, 534 F.2d 252, 256-260 (1976), the Court of Claims reached a similar result in a case involving the FICA tax which, during the year there at issue, subjected only the first $4,800 of an employee's annual compensation to tax. In disallowing the claimed payroll tax deduction, the court stated ( 534 F.2d at 260):

The main distinction is that tax accounting requires more certainty than does financial accounting. See Eastman Kodak Co. v. United States, 534 F.2d 252, 255, 209 Ct.Cl. 365 (1976) (en banc). But it is by no means clear that this distinction turns on the existence or not of legal enforceability.

The only question remaining is whether all events necessary to determine the fact of petitioner's liability for the RRTA taxes had occurred as of December 31 of each of those years. The then Court of Claims was faced with a similar question in Eastman Kodak Co. v. United States, 534 F.2d 252, 259–260 (Ct. Cl. 1976). In that case, an accrual basis calendar-year taxpayer accrued and deducted payments under the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and various state unemployment taxes attributable to wages earned during the last week of the year but not payable until the first week of the subsequent year.

Some cases hold that an expectation of payment need not be legally enforceable to be accruable. See Flamingo Resort, Inc. v. United States, 664 F.2d 1387 (9th Cir. 1981); Eastman Kodak Co. v. United States, 534 F.2d 252 (Ct.Cl. 1976); Travis v. Commissioner, 406 F.2d 987 (6th Cir. 1969); Barker v. Magruder, 95 F.2d 122 (D.C. Cir. 1938). These cases, however, involve undisputed debts and debts such as gambling markers which are routinely paid in the normal course of business although technically unenforceable.

United States v. Anderson, 269 U.S. 422, 440-41, 46 S.Ct. 131, 70 L.Ed. 347 (1926). See also Eastman Kodak Co. v. United States, 534 F.2d 252, 209 Ct.Cl. 365 (1976); Dravo Corp. v. United States, 348 F.2d 542, 172 Ct.Cl. 200 (1965). In such circumstances, where an additional tax liability for a prior year is asserted by the Service, and that liability is not "contingent and * * * contested", all events necessary to determine the fact and the amount of that liability will be deemed to have occurred in the year to which the liability related, notwithstanding the taxpayer's failure to acknowledge the liability in the prior year. Dixie Pine Products Co. v. Commissioner, 320 U.S. 516, 519, 64 S.Ct. 364, 88 L.Ed. 270 (1944); Dravo Corp. v. United States, supra.

Mesa only had the power to withhold a portion of Plaintiff's wages because of the agency authority granted to it by the IRS. See Eastman Kodak Co. v. United States, No. 517-71, 1975 WL 3591, at *6 (Ct. Cl. Apr. 1, 1975), aff'd as modified Eastman Kodak Co. v. United States, 534 F.2d 252 (Ct. Cl. 1976) ("[T]he employer functions . . . as a statutory collection agent for purposes of the employee portion of FICA."). Thus, Mesa was acting on behalf of the IRS when it allegedly made excessive withholdings.

Therefore, the fact that, under a taxpayer's accounting system, an expenditure is characterized as a reduction from income, is not controlling as to whether the expenditure is deductible as a business expense under the Internal Revenue Code. See e.g., Eastman Kodak Co. v. United States, 209 Ct.Cl. 365, 534 F.2d 252, 255-56 (Cl.Ct. 1976) (fact that generally accepted principles of accounting favored matching compensation with related payroll taxes did not ipso facto mean that the same principle applied for tax purposes); Ohmer Register Co. v. Commissioner, 131 F.2d 682, 686 (6th Cir. 1942) (fact that taxpayer, in his books, kept on accrual basis, carried balance which was owing on sales agents' commissions, and which was dependent upon collection of sales prices, under name "reserve for sales agents' commissions", was immaterial in determining whether that item was deductible as a "business expense"). Simply put, labels or book entries given to expenditures do not control their deductibility as expenses for purposes of Internal Revenue Code.

See Brown v. Helvering, 291 U.S. 193, 54 S.Ct. 356, 78 L.Ed. 725 (1934). See also Eastman Kodak Co. v. United States, 534 F.2d 252 (Ct.Cl. 1976); Denver Rio Grande Western Railroad Co. v. Commissioner, 38 T.C. 557 (1962). In Brown, the taxpayer was a general agent for fire insurance companies whose income consisted of, in part, the "overriding commissions" on policies written through local agents.