While Congress sorts out the executive compensation provisions of the tax bills (409B is in—no wait, 409B is out!), many companies are contemplating accelerating the deduction of their annual incentive bonuses in 2017 (that is, the incentive bonuses paid out in 2018 for 2017 performance). If corporate tax rates are reduced in 2018, the deduction for annual bonus payments will be more valuable in 2017 than in 2018. Individual tax rates also may be lower in 2018, but employees will recognize income in 2018, for an annual bonus paid in 2018, regardless of whether the company takes it deduction in 2017.

A potential sticking point for many companies is that they require their employees to be employed on the day bonuses are paid, usually in March 2018. Ordinarily, that requirement would cause the bonus program to fail the “all events test” under Code Section 461 and, consequently, prevent deduction in 2017.

However, there are other methods of satisfying the “all events test” to allow a company to deduct in 2017, employee bonuses paid in 2018. One way is to establish the company’s liability to pay a minimum amount of bonuses to the group of eligible employees at the end of the 2017 year, i.e., by board resolution. Under this resolution, the company must be obligated under the program to pay to the eligible employee group the minimum amount of bonuses established. Any bonus allocable to an employee who is not employed on the date on which bonuses are paid must be reallocated to other eligible employees, rather than returned to the company.

Of course, many companies already structure their annual incentive payouts to be deductible in the year earned rather than the year paid.