Eligibility
The item must be recurring in nature, not material (or result in better matching), and the all-events test must be met by year-end.
Frequently Asked Questions
Who is eligible for the Recurring Item Exception?
The item must be recurring in nature, not material (or result in better matching), and the all-events test must be met by year-end.
How does the Recurring Item Exception work?
Allows accrual-method taxpayers to deduct expenses in the year the 'all events' test is met if economic performance occurs within 8.5 months after year-end.
What law authorizes the Recurring Item Exception?
The Recurring Item Exception is authorized under IRC §461 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §461
Source: Internal Revenue Code, Title 26, United States Code
§ 461. General rule for taxable year of deduction(a) General ruleThe amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.
(b) Special rule in case of deathIn the case of the death of a taxpayer whose taxable income is computed under an accrual method of accounting, any amount accrued as a deduction or credit only by reason of the death of the taxpayer shall not be allowed in computing taxable income for the period in which falls the date of the taxpayer’s death.
(c) Accrual of real property taxes(1) In generalIf the taxable income is computed under an accrual method of accounting, then, at the election of the taxpayer, any real property tax which is related to a definite period of time shall be accrued ratably over that period.
(2) When election may be made(A) Without consentA taxpayer may, without the consent of the Secretary, make an election under this subsection for his first taxable year in which he incurs real property taxes. Such an election shall be made not later than the time prescribed by law for filing the return for such year (including extensions thereof).
(B) With consentA taxpayer may, with the consent of the Secretary, make an election under this subsection at any time.
(d) Limitation on acceleration of accrual of taxes(1) General ruleIn the case of a taxpayer whose taxable income is computed under an accrual method of accounting, to the extent that the time for accruing taxes is earlier than it would be but for any action of any taxing jurisdiction taken after December 31, 1960, then, under regulations prescribed by the Secretary, such taxes shall be treated as accruing at the time they would have accrued but for such action by such taxing jurisdiction.
(2) LimitationUnder regulations prescribed by the Secretary, paragraph (1) shall be inapplicable to any item of tax to the extent that its application would (but for this paragraph) prevent all persons (including successors in interest) from ever taking such item into account.
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