- 15 -
regulations, opted to allow a deduction at the time that the
corresponding amount was includable in an employee's gross
income, even if the employee did not properly include the
includable amount in his or her income. As a quid pro quo to
receiving the deduction at that time, however, the Commissioner
required that the employer deduct and withhold payroll taxes from
the underlying payment.
Most recently, the Commissioner has amended the regulations
under section 83(h) to "more closely [follow] the statutory
language of [that] section". T.D. 8599, supra, 1995-2 C.B. at
13. The current regulations, which are effective for deductions
in taxable years beginning on or after January 1, 1995, but which
may be used by employers claiming deductions for any taxable year
not closed by the period of limitations under section 6501, read:
�1.83-6. Deduction by employer. (a) Allowance of
deduction--(1) General rule. In the case of a transfer
of property in connection with the performance of
services * * *, a deduction is allowable under section
162 or 212 to the person for whom the services were
performed. The amount of the deduction is equal to the
amount included as compensation in the gross income of
the service provider under section 83(a) * * *, but
only to the extent the amount meets the requirements of
section 162 or 212 and the regulations thereunder. The
deduction is allowed only for the taxable year of that
person in which or with which ends the taxable year of
the service provider in which the amount is included as
compensation. * * *
(2) Special Rule. For purposes of paragraph
(a)(1) of this section, the service provider is deemed
to have included the amount as compensation in gross
income if the person for whom the services were
performed satisfies in a timely manner all requirements
of section 6041 or section 6041A, and the regulations
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