Revenue Ruling 60-31

In January 1958, an executive entered a five-year employment contract with a corporation. The contract provided that the executive would receive an annual salary and be entitled to additional compensation of $10x each year. The additional compensation was to be credited to a bookkeeping reserve account and would be deferred, accumulated, and paid in five annual installments. The reserve payments were to begin if (1) the corporation terminated the executive’s employment, (2) the executive became a part-time employee of the corporation, or (3) the executive became totally or partially incapacitated. The employment agreement obligated the corporation to make the payments when due, but there was no intent for the corporation to hold the reserve amounts in trust for the executive. In a separate scenario, a football player entered into a two-year contract with a football club in June 1957. The contract provided for the football player to receive a salary and a $150x signing bonus. The contract provided that the player would receive the $150x bonus upon signing, contingent upon the club’s payment of the $150x to an escrow agent designated by the football player. The parties also executed an escrow agreement pursuant to which the club agreed to pay $150x to the escrow agent and the escrow agent agreed to pay that amount, plus interest, to the football player in installments over five years. The escrow account bore the football player’s name, and payments from the account could be made only in accordance with the terms of the escrow agreement. Both the executive and the football player utilized the cash-receipts-and-disbursements method of accounting. The Internal Revenue Service issued a revenue ruling to clarify when the executive’s additional compensation and the football player’s signing bonus were includible in the respective taxpayers’ gross incomes.