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includible in the gross income of the persons
participating in the plan.
The facts at hand establish as to Clarkston’s service
agreement with J.D. a method or arrangement that “has the effect
of a * * * plan deferring the receipt of compensation” by a
nonemployee so as to subject Clarkston’s deduction of the fees
for J.D.’s services to the timing rule of section 404(d). Sec.
404(a), (b)(1)(B), (d). Section 404(d) sweeps broadly to apply
to all compensation plans, methods, or arrangements
(collectively, arrangements), however denominated, which in
substance defer the receipt of compensation by a service
provider. Sec. 1.404(b)-1T, Q&A-1, Temporary Income Tax Regs.,
51 Fed. Reg. 4321 (Feb. 4, 1986); sec. 1.404(d)-1T, Temporary
Income Tax Regs., 51 Fed. Reg. 4322 (Feb. 4, 1986); see also Avon
Prods., Inc. v. United States, 97 F.3d 1435 (Fed. Cir. 1996);
Truck & Equip. Corp. v. Commissioner, 98 T.C. 141, 145-154
(1992).3 An arrangement defers the receipt of compensation if
3 We also note that the legislative history of sec. 404(a),
(b), and (d) supports our construction of that section. That
history is generally discussed in detail in Avon Prods., Inc. v.
United States, 97 F.3d 1435, 1439-1442 (Fed. Cir. 1996), and
Truck & Equip. Corp. v. Commissioner, 98 T.C. 141, 145-154
(1992). We stress that the House Committee on Ways and Means, in
describing a 1984 amendment to sec. 404(b), stated that:
Generally, all compensation arrangements which defer
receipt of compensation by the employee or independent
contractor will be subject to these special
deduction-timing rules. For example, under the bill, a
(continued...)
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