SECTION 13. DEFERRED

COMPENSATION (§ 404)

.01 Reserved . .02 Deferred compensation . (1) Description of change . This change applies to a taxpayer using an overall accrual method of accounting that wants to change its method of accounting to treat bonuses or vacation pay as follows ( see § 404(a)(5) and § 1.404(b)–1T, Q&A 2):

(a) Applicability . (i) Bonuses . (A) Bonuses not subject to capitaliza- tion under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay a bonus and the amount of the liability can be determined with reasonable accuracy ( see § 1.446–1(c)(1)(ii)), and the bonus is otherwise deductible, but the bonus is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the bonus as deductible in the taxable year of the employer in which or with which ends the taxable year of the employee in which the

February 2, 2015 520 Bulletin No. 2015–5

change under this section 14.01 applies to (1) a taxpayer required to make this change by § 448, any other section of the Code or regulations, or in other guidance published in the Internal Revenue Bulletin (IRB), as well as (2) a taxpayer that wants to make this change but is not required to do so by § 448, any other section of the Code or regulations, or in other guidance published in the IRB. A taxpayer changing to an overall accrual method because it is prohibited from using the overall cash method under § 448 may use this section 14.01 regardless of whether the year of change is the first taxable year that the taxpayer is required by § 448 to change from the cash method (“the first § 448 year”), or is a taxable year other than the taxpayer’s first § 448 year.

Additionally, a taxpayer qualifies to change its overall method of accounting from the cash method to an accrual method using this section 14.01 even if the taxpayer is also making one or more of the following changes in method of accounting for the same year of change:

(i) adopting the recurring item exception (as defined in section 14.01(2)(c) of this revenue procedure) for one or more types of recurring items ( see § 1.461–5(d));

(ii) adopting or changing to a permissible inventory method of accounting and is either adopting this inventory method or qualifies to change to this inventory method using the automatic change procedures of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, and a section of this revenue procedure, or the change can be made automatically under any section of the Code or regulations, or other guidance published in the IRB (see Rev. Rul. 90–38, 1990–1 C.B. 57 (regarding when a taxpayer may adopt a method of accounting));

(iii) adopting or changing to a permissible § 263A method of accounting and is either adopting this § 263A method or qualifies to change to this § 263A method using the automatic change procedures of Rev. Proc. 2015–13 and a section of this revenue procedure, or the change can be made automatically under any section of the Code or regulations, or other guidance published in the IRB (see Rev. Rul. 90–38 (regarding when a taxpayer may adopt a method of accounting)); or

(iv) adopting or changing to any other special method of accounting (as defined in section 14.01(2)(d) of this revenue pro

bonus is includible in the gross income of the employee; or

(B) Bonuses that are subject to capi- talization under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay a bonus and the amount of the liability can be determined with reasonable accuracy ( see § 1.446–1(c)(1)(ii)), and the bonus is otherwise deductible (without regard to § 263A), but the bonus is received by the employee after the 15 ^th

day of the 3 ^rd calendar month after the end of that taxable year, to treat the bonus as capitalizable (within the meaning of § 1.263A–1(c)(3)) in the taxable year of the employer in which or with which ends the taxable year of the employee in which the bonus is includible in the gross income of the employee.

(ii) Vacation pay . (A) Vacation pay not subject to capi- talization under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of the liability can be determined with reasonable accuracy ( see § 1.446– 1(c)(1)(ii)), and the vacation pay is otherwise deductible but the vacation pay is received by the employee after the 15 ^th

day of the 3 ^rd calendar month after the end of that taxable year, to treat the vacation pay as deductible in the taxable year of the employer in which the vacation pay is paid to the employee; or

(B) Vacation pay that is subject to cap- italization under § 263A . If by the end of the taxable year all the events have occurred that establish the fact of the liability to pay vacation pay and the amount of the liability can be determined with reasonable accuracy ( see § 1.446– 1(c)(1)(ii)), and the vacation pay is otherwise deductible (without regard to § 263A), but the vacation pay is received by the employee after the 15 ^th day of the 3 ^rd calendar month after the end of that taxable year, to treat the vacation pay as capitalizable (within the meaning of § 1.263A–1(c)(3)) in the taxable year of the employer in which the vacation pay is paid to the employee.

(b) Inapplicability . This change does not apply to a taxpayer that is required under § 263A and the regulations thereunder to capitalize the costs with respect

to which the taxpayer wants to change its method of accounting under this section 13.02 if the taxpayer is not capitalizing these costs, unless the taxpayer concurrently changes its method to capitalize these costs in conjunction with a change to a UNICAP method under section 11.01, 11.02, 11.09, or 11.13 of this revenue procedure (as applicable).

(2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 13.02 is “28.” (3) Contact information . For further information regarding a change under this section, contact Maryellen Furr at (202) 317-5600 (not a toll-free number). .03 Grace period contributions . (1) Description of change . This change applies to a taxpayer that wants to cease deducting contributions made during the § 404(a)(6) grace period to a qualified cash or deferred arrangement within the meaning of § 401(k) or to a defined contribution plan as matching contributions with the meaning of § 401(m) when the contributions are attributable to compensation earned by plan participants after the end of a taxable year as required by Rev. Rul. 2002–46, 2002–2 C.B. 117, as modified by Rev. Rul. 2002–73, 2002–2 C.B. 805. (2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 13.03 is “29.” (3) Contact information . For further information regarding a change under this section, contact David Ziegler at (202) 317-8629 or Carlton Watkins at (202) 317-8631 (not toll-free calls).