Deferred compensation expensing treatment reversed


The IRS recently issued a general legal advice memorandum (GLAM 2022-001) addressing the treatment of deferred compensation expense for purposes of computing a taxpayer’s foreign-derived intangible income (FDII) deduction.

The GLAM provides that for purposes of allocating and apportioning deferred compensation expense under Section 861, expenses that relate to services provided in pre-FDII years—but are deductible in post-Section 250 enactment years—should be allocated to FDII.

Previously, in GLAM 2009-001 the Associate Chief Counsel International (ACCI) concluded, under similar facts, that costs that existed prior to an effective date of certain statutory groupings did not have to be allocated and apportioned to such statutory groupings that exist in the taxable year the deductions are taken into account. The 2009 GLAM dealt with the allocation and apportionment of deferred compensation expense for purposes of computing a taxpayer’s qualified production activity income and the Section 199 deduction. In the 2022 GLAM, the IRS indicated it had reconsidered the prior conclusion in the 2009 GLAM, and determined that GLAM 2009-001 no longer represents the position of the ACCI and is obsolete.

The 2022 GLAM applied general federal income tax principles when arguing that taxpayers must take into account the law in effect for the taxable year the deduction is allowed, irrespective of the fact that the deduction factually relates to gross income that accrued prior the effective date of the classification of gross income in question. According to the IRS, in order to accurately measure the income eligible for a FDII deduction, a taxpayer must use consistent standards for characterizing income and expenses related to that income which is recognized in a taxable year.




Cory Perry

Washington DC, Washington DC

  • Manufacturing
  • Technology and telecommunications
  • Private equity
Service Experience
  • Tax
Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More tax hot topics