SECTION 4. SAFE HARBOR METHOD

.01 In General . Under the safe harbor method of accounting, and solely for purposes of the recurring item exception provided in § 1.461–5, a taxpayer will be treated as satisfying the requirement in § 1.461–5(b)(1)(i) for its payroll tax liability in the same taxable year in which all events have occurred that establish the fact of the related compensation liability and the amount of the related compensation liability can be determined with reasonable accuracy.

.02 Examples . (1) Example 1 . X uses an accrual method of accounting, including the use of the recurring item exception, and files its returns on a calendar year basis. X properly changes to the safe harbor method of accounting described in section 4.01 of this revenue procedure for its payroll tax liabilities. During Year 1, A, an employee of X, earns $10,000 of vested vacation compensation for services performed during Year 1. X pays the vacation compensation to A

in February and May of Year 2. X incurs a payroll tax liability for the $10,000 vested vacation compensation payment. Assume that, as of December 31 of Year 1, all events have occurred to establish the fact of X ’s vested vacation compensation liability and the amount of the liability is determinable with reasonable accuracy. Under the provisions of this revenue procedure, and solely for purposes of applying the recurring item exception, all events necessary to establish the fact of X ’s payroll tax liability for the $10,000 vested vacation compensation will be treated as having occurred in Year 1 and the amount of the payroll tax liability will be treated as being determined with reasonable accuracy in Year 1.

(2) Example 2 . Y uses an accrual method of accounting, including the use of the recurring item exception, and files its returns on a calendar year basis. X properly changes to the safe harbor method of accounting described in section 4.01 of this revenue procedure for its payroll tax liabilities. On December 28 of Year 1, Y ’s board of directors approves a bonus pool of $1,000,000 to be paid to Y ’s employees for services provided during Year 1. The $1,000,000 in bonuses is paid to Y ’s employees on January 5 of Year 2. Y incurs a payroll tax liability as a result of the $1,000,000 in bonuses paid to its employees. Assume that, as of December 31 of Year 1, all events have occurred to establish the fact of the bonus compensation liability and the amount of the liability is determinable with reasonable accuracy. Under the provisions of this revenue procedure, and solely for purposes of applying the recurring item exception, all events necessary to establish the fact of Y ’s payroll tax liability for the $1,000,000 in bonuses will be treated as having occurred in Year 1, and the amount of the payroll tax liability will be treated as being determined with reasonable accuracy in Year 1.