Economic Performance Rule

Economic Performance Rule

Economic Performance Rule means:
a concept that determines when a liability generates a deductible expense. When a liability requires payment for property or services, economic performance occurs as the property or services are provided. When a liability occurs from the taxpayer's use or provision of a property, economic performance occurs as the taxpayer uses or provides the property. Payment for services or property can be accrued if the taxpayer expects to receive them within 3V2 months after payment. Payment of any of the following is treated as meeting the requirements of economic performance: • workers' compensation, tort, or breach of contract claims.

• rebates and refunds.

• prizes and awards.

• insurance, warranty, and service agreements.

• taxes other than creditable foreign taxes.

See also all-events test; recurring item exception method. Former IRC (check if this IRC provision is current here) §461(h)(2).


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