Cash bonuses not deductible until year of payment, IRS concludes

Washington National Tax Services
In recently released Field Attorney Advice (FAA) 20134301F, the IRS concluded that a taxpayer was not entitled to deduct cash bonuses paid to employees until the end of the year in which the bonuses were actually paid.  The IRS reasoned that certain provisions of the bonus plan prevented the all-events test from being met until payment actually occurred.

Any taxpayer that offers an incentive compensation plan to its employees and that has not reviewed the terms of the plan to determine whether the liability is fixed at year end should consider whether this guidance raises concerns regarding the proper timing of the deduction for payments made pursuant to the plans.


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