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liability arises out of a taxpayer’s receipt of services
performed by another person, economic performance generally
occurs as the services are performed. Sec. 461(h)(2)(A)(i).
Respondent argues that section 1.461-1(a)(2)(iii)(D), Income
Tax Regs., mandates that Clarkston also meet the timing rule of
section 404(d) in order to satisfy the requirement of economic
performance. We agree. As stated in subdivision (iii)(D):2
(iii) Alternative timing rules
* * * * * * *
(D) Except as otherwise provided in any Internal
Revenue regulation, revenue procedure, or revenue
ruling, the economic performance requirement of section
461(h) and the regulations thereunder is satisfied to
the extent that any amount is otherwise deductible
under section 404 (employer contributions to a plan of
deferred compensation) * * *.
As stated in the relevant parts of section 404:
SEC. 404. DEDUCTION FOR CONTRIBUTIONS OF AN EMPLOYER TO
AN EMPLOYEES’ TRUST OR ANNUITY PLAN AND
COMPENSATION UNDER A DEFERRED-PAYMENT PLAN.
(a) General Rule.—If contributions are paid by an
employer to or under a stock bonus, pension,
2 We also believe that sec. 1.461-1(a)(2)(iii)(A), Income
Tax Regs., is relevant to our discussion. As stated therein:
(A) If any provision of the Code requires a liability
to be taken into account in a taxable year later than
the taxable year provided in paragraph (a)(2)(i) of
this section, the liability is taken into account as
prescribed in that Code provision. See, for example,
section 267 (transactions between related parties) and
section 464 (farming syndicates).
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Last modified: May 25, 2011