Rev. Rul. 58-24

Taxpayer, a corporation employing the accrual method of accounting, erroneously deducted accruable vacation pay in the year paid rather than the year accrued. During the taxable year 1953, the taxpayer paid and deducted vacation pay which was a proper deduction for the taxable year 1952, a year now barred by the statute of limitations. For 1953, the taxpayer also deducted vacation pay which was properly accruable for such year. Held, the deduction for vacation pay which accrued in 1952 is not a proper deduction for 1953, when paid, and, therefore, is not allowable. However, since a credit or refund attributable to the deduction for vacation pay accrued in 1952 was not barred by the statute of limitations at the time such deduction was originally claimed in 1953, an adjustment for 1952 is permissible under section 1312(4) of the Internal Revenue Code of 1954, provided the provisions of sections 1311 to 1315, inclusive, of the Code are otherwise met. See Revenue Ruling 57-13, C.B. 1957-1, 552. The allowance of the deduction in the year 1952 for vacation pay disallowed for 1953 results in a pyramiding of vacation pay deductions in 1952, one on the cash method, attributable to 1951, and one on the accrual method. Despite this result, section 1314(c) of the Code provides that the amount to be refunded or credited in the same manner as an overpayment shall not be diminished by any credit or set-off based upon any item other than the one which was the subject of the adjustment.