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Despite the existence of these taxpayer-friendly rulings,
courts imposed a stricter standard for the accrual of vacation
pay liabilities in instances where earned vacation pay
entitlements were forfeitable due to post-yearend contingencies.
E.g., E.H. Sheldon & Co. v. Commissioner, 19 T.C. 481 (1952),
affd. in part and revd. in part 214 F.2d 655 (6th Cir. 1954);
Tennessee Consol. Coal Co. v. Commissioner, 15 T.C. 424 (1950).
In light of these decisions, the IRS issued Rev. Rul. 54-
608, 1954-2 C.B. 8, which revoked I.T. 3956 and modified G.C.M.
25261, 1947-2 C.B. 44. The ruling stated that employers must
"clearly establish" the fact of liability to individual employees
by the end of a tax year to accrue vacation pay in that year.
Rev. Rul. 54-608, 1954-2 C.B. at 9-10. Consequently, if an
employee had to remain employed beyond the end of the year and
until the scheduled vacation period in order to fix the
employer's liability, respondent did not consider the liability
to be accruable.
To prevent hardship to taxpayers who had relied on I.T.
3956, Congress continually delayed the effective date of Rev.
Rul. 54-608 while it studied the vacation pay issue. See Denver
& Rio Grande W. R.R. v. Commissioner, 38 T.C. 557, 575-576 nn.8,
9 (1962). Congress subsequently enacted section 463 in direct
response to the strict accrual doctrine set forth in the ruling.
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