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contingent liability

   Also found in: Wikipedia 0.03 sec.
contingent liability
An obligation that may result, but is not likely to result because the event causing the obligation is improbable. For example, the award from a lawsuit against a firm is a contingent liability of the defendant if there is little likelihood the plaintiff will recover the award.

contingent liability

A liability that is not currently a liability but may become one upon the happening of some future event.If a father guarantees the student housing lease of his son,then the son is liable for the rent but the father may become liable if the son defaults. Other common contingent liabilities are guarantees of the debts of others,potential adverse judgments in litigation,and currently contested tax liabilities or audits. Lenders sometimes request a list of all contingent liabilities when evaluating a borrower's financial strength.



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Although in the past the government won a number of important victories in its ongoing attempt to stop abusive tax transactions, it has continued to lose on contingent liability transactions.
Now, under Statement 157, any contingent liability must be quantified, regardless of its probability.
History of Contingent Liability Transactions Coltec was one of a series of cases in which the government challenged transactions involving the transfer of contingent liabilities and assets to a subsidiary followed by the sale of the subsidiary's stock.
 
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