From the IRS
In Rev. Rul. 2011-29, the IRS ruled that accrual-method employers in certain circumstances can currently deduct accrued bonuses paid within 2½ months of year-end despite a contingency in the bonus plan that the employee be still employed on the date the bonus is paid. This represents a change of position for the IRS, which had previously held that, if the bonus plan required the employee to still be employed when the bonus was paid, this contingency meant that the fact of liability was not fixed at the end of the year the services were performed and, therefore, under the all-events test, the bonus could not be deducted until it was paid.
For the payments to be deductible, the revenue ruling requires the minimum aggregate amount of bonuses payable under a plan to the employees as a group to be calculated either through a formula that is fixed at the end of the tax year or through a corporate action (e.g., a board resolution) made before the end of the tax year. The bonus plan must also require that any bonus amount allocable to an employee who is no longer employed on the date of payment be reallocated to the other covered employees and not revert to the employer.
Under these conditions, because the aggregate minimum amount of the bonus pool is fixed at year-end and will not change, the IRS will allow the employer a current-year deduction (if bonuses are paid within 2½ months of the year-end) even though the bonus amount payable to any particular employee is not fixed until the bonuses are paid.
The IRS advised that, if an employer changes its bonus plan to conform to the new rules, this will be considered a change of accounting method.
