fact that generally accepted principles of accounting favored matching compensation with related payroll taxes did not ipso facto mean that the same principle applied for tax purposes
How later courts described this case
- fact that generally accepted principles of accounting favored matching compensation with related payroll taxes did not ipso facto mean that the same principle applied for tax purposes
- “The ‘all events’ test on the other hand looks to a liability that is so fixed that the fact of liability is certain and the amount thereof reasonably ascertainable, although not necessarily legally enforceable.”
Written by the judges who cited it.
The opinion
Bennett, Judge,
concurring:
Otte v. United States, 419 U.S. 43 (1974), announces the principle that only at such time as the underlying employee compensation is paid does the legal liability for appurtenant employment taxes become presently enforceable. This is a good rule if properly confined to a case such as Otte . But, prior to the moment at which legal liability for employment taxes becomes presently enforceable, for tax purposes all events may occur which of logical necessity collectively determine whether or not the taxpayer will at some later time encounter a presently enforceable legal liability for such taxes. In the instant case employees’ year-end wages were earned in 1964, subject to actual payment at a time in 1965 when liability for employment taxes would attach to such payment as a matter of law. Therefore, the fact of legal liability for employment taxes — enforceable at a future time— existed in 1964, as soon as year-end wages were earned. The earning of year-end wages constitutes the final event determinative of the fact of liability for appurtenant employment taxes in a reasonably ascertainable amount in this part of the case. Accordingly, employment taxes attributable to such *380 year-end wages may be deducted in the year the wages are earned in the case of an accrual basis taxpayer.
The dissent rightly observes that the taxpayer could properly report a deduction for the year-end wages themselves in the year earned, “even though the wages were not yet due or payable.” Thus, the court appears to be unanimous in the view that prior to the time a legal liability becomes presently enforceable, all events may well come to pass determining the fact of liability in a reasonably ascertainable amount. If the contingency that the wages will not be paid when actually due does not preclude a deduction for such wages in the year earned, I see no logical reason why the same contingency should work differently and rule out a deduction for 'appurtenant employment taxes corresponding to the year-end wages accrued in the same year and which wages give rise to the taxes. All events have fixed both liability and the reasonably ascertainable amount of taxes. I do not consider that the Supreme Court has overruled this test which has been the law at least since 1926 in timing expense deductions. Otte did not even mention Anderson, let alone overrule it. Nor was it necessary to discuss Anderson since it was a problem in quite a different context. Otte is no authority presently relevant and the numerous authorities relied on in the dissent are not relevant when we consider that the premise used for them — payment of wages as the controlling event that would allow taxes to be accrued — is without foundation under the facts and law of this case.
With deference to the thorough analysis set down in Judge Skelton’s opinion, I join the majority opinion.