In an unrelated development, the IRS provided a safe harbor method for accounting by accrual-method taxpayers for FICA and FUTA tax liabilities incurred by compensation earned at year end and paid in the new year. The recurring-item exception of Treas. Reg. § 1.461- 5(b)(1)(i) will be available to taxpayers under the all-events test, the Service said in Revenue Procedure 2008-25. The method is included as an automatic consent to change of accounting provided under Revenue Procedure 2002-9. Citing Eastman Kodak Co. v. U.S. (37 AFTR2d 76-1200), the Service and Treasury noted that taxpayers may not know at the end of a taxable year whether an employee has reached any applicable payroll tax ceiling by the time the tax is paid, raising a question as to when the corresponding liability is fixed. The method is effective for taxable years ending on or after Dec. 31, 2007.
FICA Holdings Overturned
June 1, 2008