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Abstract: 

Community banks—generally, institutions with less than $10 billion in assets and primarily U.S. domestic operations—deal with many of the same issues that face larger institutions. One “shared” issue relates to the payment of bonuses to recognize outstanding performance. Bonus arrangements for executives that have met the all-events test as of year-end will be accrued for financial accounting purposes, but may not be deductible for tax purposes in the year of accrual for book purposes. The terms of each bonus plan will determine whether the accrual meets the economic performance requirement for tax purposes. In addition, the terms of the bonus plan will also determine whether each bonus plan will be subject to Section 409A rules.

Keywords: Chief Counsel Advice 200949040; bonus deductibility; plan of deferred compensation; IRC§ 404; IRC § 409A; all-events test

Affiliations:  1: Perry Smith LLP.