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and the third of which sets forth the timing of the deduction.
Section 1.83-6(a)(3), Income Tax Regs., by contrast, contains
only one rule, and that rule speaks only to the timing of the
deduction.
The following example illustrates the applicability of
section 1.83-6(a)(3), Income Tax Regs. Assume that the
respective taxable years of an employer and an employee end on
July 31 and December 31. Assume further that the employer
transfers property to the employee on May 1, 1993, in connection
with services rendered, that this property is substantially
vested at the time of transfer, and that the employer deducts and
withholds income tax on this transfer under section 3402. In
such a case, the employee must include the value of the property
in income for his or her taxable year ended December 31, 1993.
See sec. 83(a). With respect to the employer, the general rule
of section 1.83-6(a)(1) and (2), Income Tax Regs., forces it to
deduct the value of the transfer in its taxable year ended
July 31, 1994 (i.e., its taxable year in which ends the taxable
year of the employee in which the amount is included in gross
income), although the employer made the payment in its taxable
year ended July 31, 1993. By virtue of the safe harbor in
section 1.83-6(a)(2), Income Tax Regs., and the exception in
section 1.83-6(a)(3), Income Tax Regs., the employer can take the
deduction in its taxable year ended July 31, 1993; i.e., the year
in which the amount is deductible under the employer's method of
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