SECTION 3. SCOPE

.01 This revenue procedure applies to the direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract, regardless of whether the two annuity contracts are issued by the same or different companies.

.02 This revenue procedure does not apply to transactions (sometimes referred to

2008–13 I.R.B. 685 March 31, 2008

1969–2 C.B. 108, concludes that, under the all events test of § 461, an accrual method employer generally may not deduct payroll taxes payable with respect to bonuses and vacation pay accrued but unpaid at year-end until the taxable year in which the bonuses and vacation pay are paid. Similarly, Rev. Rul. 74–70, 1974–1 C.B. 116, concludes that, under the all events test of § 461, an accrual method employer generally may not deduct its share of FICA taxes payable with respect to wages accrued but unpaid at year-end until the taxable year in which those wages are actually or constructively paid.

The Service’s position on the accrual of payroll taxes was challenged in litigation. The Court of Claims in Eastman Kodak Co. v. United States, 534 F.2d 252 (Ct. Cl. 1976), acq., 1996–2 C.B. 1, addressed the deductibility of FICA and FUTA taxes on wages, bonuses, and vacation pay accrued in Year 1 but paid in Year 2. The court held, contrary to Rev. Rul. 74–70, that the fact of the liability for payroll taxes on the wages was established in Year 1 as an automatic consequence of the definite and legal obligation to pay the year-end wages. However, the court also held that the fact of the liability for payroll taxes on bonuses and vacation pay was not established in Year 1 because of the uncertainty as of the end of Year 1 that the employee may have reached the payroll tax ceiling at the time of payment in Year 2.

.07 Consistent with the court’s holding in Eastman Kodak, the Service conceded the issue of deductibility of payroll taxes for year-end wages in Rev. Rul. 96–51, 1996–2 C.B. 36. Rev. Rul. 96–51, which revoked Rev. Rul. 74–70, concludes that, under the all events test of § 461, an accrual method employer may deduct in Year 1 its otherwise deductible payroll taxes imposed on year-end wages properly accrued in Year 1 but paid in Year 2, provided the employer satisfies the requirements of the recurring item exception in § 1.461–5 with respect to those taxes. In Rev. Rul. 96–51, the year-end wages were paid before the 15 ^th day of the 3 ^rd calendar month after the end of Year 1 and, thus, were not deferred compensation under § 404. Because the year-end wages were not deferred compensation, Rev Rul. 96–51 does not address the application of § 404 to payroll taxes on deferred compensation.

DRAFTING INFORMATION

The principal author of this revenue procedure is John E. Glover of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Mr. Glover at (202) 622–3970 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also Part I, §§ 446, 461, 481; 1.446–1, 1.461–1, 1.461–4, 1.461–5, 1.481–1.)

Rev. Proc. 2008–25