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Copyright (c) 2010 University of Florida
Florida Tax Review

Article: Just Enough: Substantial Performance, Ministerial Acts and the All Events Tests for Income and Expense Accruals

2010

Florida Tax Review

10 Fla. Tax Rev. 459

Author

Glenn Walberg*

Excerpt



I. Introduction



The tax law sets unrealistic expectations for accruing many income and expense items arising out of bilateral contracts. Under an accrual method, a taxpayer generally takes an income item into account when the taxpayer has a fixed right to receive it and takes an expense item into account when the taxpayer has a fixed liability to pay it. 1 The tax law thus expects the taxpayer to determine when all events have occurred to make the right or liability unconditional. 2 The taxpayer might find this determination easy if it were to exchange only one promise for one promise (e.g., seller only promises to perform services and buyer only promises to pay), use words establishing conditional relationships (e.g., the buyer promises to pay if and only if the seller performs the services), and experience nothing short of complete performance (e.g., the seller never provides nonconforming services). But the taxpayer probably doesn't engage in those transactions very often.



For most transactions, the taxpayer will find it difficult to determine whether all events have occurred to fix rights and liabilities from bilateral contracts. For example, consider a contract that contains a typical explicit requirement that a service provider submit an invoice to a client to receive payment for rendered services. Once the services have been performed, the accrual method rules contemplate that the parties will determine whether the submission of the invoice represents an event that must occur to fix the service provider's right to income ...
 
 
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