Taxes on year-end wages accrue before either is paid

Article Abstract:

Revenue Ruling 96-51 indicates that employment taxes on wages can be deducted in the earlier year under the recurring-item exception if the wages are paid the year after they are earned as a result of an overlap in the payroll period. The accrual of taxes prior to the payment of wages alters the long-held position of the IRS regarding this matter. Accrual-method taxpayers are usually burdened with an expense when all events have happened that lay down the fact of liability, the amount can be determined with acceptable accuracy and economic performance has taken place. The IRS warns that the treatment of the FICA and FUTA of an employer for an overlapping payroll period is an accounting method. This means that accrual-method employers that have been making deductions on these taxes in the year paid must have the consent of the IRS before deducting them in the previous year.

Wages, Wages and salaries, Accrual basis accounting

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No charitable deduction for promise to give

Article Abstract:

Two court cases indicate that the inability of a charity to collect a a charitable contribution can prevent the taxpayer to avail of a deduction. In 'Estate of Levin,' a decedent promised to establish charitable remainder trusts but died before fulfilling his pledge. Meanwhile, the decedent in 'Estate of Sochalski' made a written promise to give a gift to his church but passed away before making it. In both cases, the estate eventually fulfilled the promise of the decedent after their deaths. The Tax Courts that presided over the two cases, however, decided that the contributions cannot be deducted because they were not enforceable under state law. Moreover, they reasoned that the claims were not based on consideration supplied in money or money's worth.

Charitable contributions, Charitable donations

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Some fines and penalties can be deducted

Article Abstract:

Fines and settlements arising from actual or threatened litigation can cost businesses anywhere from several thousand to several million dollars. These payments are not deductible under Section 162(f), but Reg. 1.162-21(b) has opened opportunities for deduction by not providing a unique definition of a fine or penalty. While Sec. 162(f) specifically disallows criminal and civil fines and penalties, many courts have ruled that it does not mention civil penalties intended to be remedial rather than punitive. Therefore, to qualify for a deduction, it is important for taxpayers involved in a legal conflict to agree to settlement to avoid a criminal suit. They should also request that the settlement agreement specifies the remedial nature of the payment.

Management, Compromise and settlement, Settlements (Law), Fines (Penalties)

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