Corporate Officer Compensation

[BulldogTom]

Is the rule that a corporation with a fiscal year end may accrue year end bonuses and deduct them on the corporate tax return if paid within 2 1/2 months? If the employee is 100% shareholder, does the above rule still apply?

Regulation §1.267b seems to take care of the first question, but I think I remember something about the loss of deduction on related parties, even if paid in 2 1/2 months.

Thanks for your help.

Tom

Lodi, CA

[BulldogTom]

Second question

Can any of you with great research software tell me if Rev. Ruling 68-114 has been superceded? If not, I have my answer.

Thanks

Tom

Lodi, CA

[jainen]

>>tell me if Rev. Ruling 68-114 has been superceded<<

It is still in effect as originally written. It's old, though, so other laws or rulings on Section 267 might have nipped at its edges.

[BulldogTom]

>>tell me if Rev. Ruling 68-114 has been superceded<<

It is still in effect as originally written. It's old, though, so other laws or rulings on Section 267 might have nipped at its edges.

Thank you Jainen

[OldJack]

OK.. for others that might read this and wonder, it doesn't matter what accounting method or year end. A corporation may not deduct a shareholders wages on the books that have not been actually paid in cash before the corporations year end. If such wages are on the books they are a page 4, Sch-M, adjustment in the year booked and an adjustment when deducted in the year actually paid.

[BulldogTom]

OK.. for others that might read this and wonder, it doesn't matter what accounting method or year end. A corporation may not deduct a shareholders wages on the books that have not been actually paid in cash before the corporations year end. If such wages are on the books they are a page 4, Sch-M, adjustment in the year booked and an adjustment when deducted in the year actually paid.

Sorry, I guess I should have made that clear. The code section 267 says that a 50% or more shareholder accrued wages or bonus may not be deducted until the day paid. The 2 1/2 month rule does not apply. The above rev ruling is deceptive, because it is before the 1984 code changes. It should be obsoleted by the IRS, but since the taxpayer losses because of the 2 1/2 month provision, I think they are keeping it as guidence for non-shareholder bonuses.

Thanks Jack. I will try to follow up on my posts in the future.

Tom

Lodi, CA