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Industry Director and Implications for Corporations

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How does the IRS suggest that corporate taxpayers apportion prior period compensation expenses that are not part of cost of goods sold? See Industry Director Directive (IMSB 04-0209-004), March 2009.

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Step 1
According to the IRS, those cost of goods sold items that are below the line deduction are governed under Section 861 rules unless the taxpayer qualifies for one of the simplified methods intended for small taxpayers. Under the Section 861 rules deduction are allocated among groupings of income. These allocations are done based on the factual relationships that source the expense other tan for interest and R&D.

Step 2
In March 2009, LMSB 04- 0209-004 was released. Corporations were provided an acceptable method of allocating and apportioning prior-period compensation expenses that are not treated as a part of cost of goods sold. This is the safe harbor method and IRS said that it would not challenge taxpayers that apply the method. For corporations, this method ...

Solution Summary

This solution explains industry director directive LMSB 04- 0209-004 and its implications for corporations. The sources used are also included in the solution.