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Contingencies on Employee Bonuses Delay Employer's Tax Deduction According to IRS Chief Counsel Memo

An employer cannot deduct cash bonuses in the year in which its employees perform the services giving rise to the bonuses, but must wait until the following year when the bonuses are paid, under bonus plans with several fairly typical features, according to a recently released Internal Revenue Service chief counsel memorandum (Number 20134301F), dated Sept. 18, 2013. The memorandum illustrates the types of unresolved contingencies that may remain at the end of the year in which employees work to earn their bonuses and delay the employer's deduction until the following year when the bonuses are paid and the contingencies resolved. Although the IRS memorandum applies only to the taxpayer described in the memorandum, and cannot be used or cited as precedent by others, the memorandum nevertheless provides insight on the IRS's current views on these matters.

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