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Changes for Business
- Employer Deduction for Vacation and Severance Pay. Effective for tax
years ending after July 22, 1998, for purposes of determining whether
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an item of compensation is nondeductible deferred compensation, the compensation is not
considered to be paid or received until it is actually received by the employee. Also, an
item of deferred compensation is not considered paid to an employee until it is actually
received by the employee. Adjustments required under the tax code as a result of this
change are to be taken into account.
This provision is intended to overrule a Tax Court decision that had allowed an employer
to deduct vacation pay before it was actually paid to employees.
- No Mark-to-Market for Certain Trade Receivables. Effective for tax
years ending after July 22, 1998, certain trade receivables are not eligible for
mark-to-market treatment. A trade receivable is covered by the provision if
- It is a note, bond, or debenture
- It arises out of the sale of goods by a person whose principal activity is selling or
providing nonfinancial goods and services
- It is held by such person at all times since it was issued
Adjustments required under the tax code as a result of this change are to be taken into
account ratably over a three-year period.
- Rollover of Gain from Sale of Qualified Small Business Stock. Gain from
the sale of qualified small business stock held by an individual for more than six months
can be "rolled over" tax free to other qualified small business stock. The 1998
legislation extended the same opportunity to a partnership or an S corporation if all the
interests in the partnership or S corporation are held by individuals, estates, or trusts
(other than trusts with corporations as beneficiaries) at all times during the tax year.
The benefit of a tax-free rollover by a partnership flows through to a partner who is not
a corporation, if the partner held that partnership interest at all times that the
partnership held the small business stock.
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Tax Guide
