An accrual basis employer may take a deduction for deferred compensation when the employer promises to pay the deferred compensation, but does not set aside funds for that purpose.

Question

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Under the accrual basis of accounting, an employer can only take a deduction for deferred compensation when the services are performed and the employee's right to the compensation vests, not merely when the employer promises to pay. Setting aside funds is not a requirement for the deduction, but the obligation must be fixed and determinable.

An Accrual Basis Employer May Take a Deduction for Deferred