Certain liabilities not incurred before economic performance

For purposes of this title, in determining whether an amount has been incurred with respect to any item during any taxable year, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs.

Except as provided in regulations prescribed by the Secretary, the time when economic performance occurs shall be determined under the following principles:

(A) Services and property provided to the tax­payer If the liability of the taxpayer arises out of— (i) the providing of services to the taxpayer by another person, economic performance occurs as such person provides such services, (ii) the providing of property to the taxpayer by another person, economic performance occurs as the person provides such property, or (iii) the use of property by the taxpayer, economic performance occurs as the taxpayer uses such property.

(B) Services and property provided by the taxpayer If the liability of the taxpayer requires the taxpayer to provide property or services, economic performance occurs as the taxpayer provides such property or services.

(C) Workers compensation and tort liabilities of the taxpayer If the liability of the taxpayer requires a payment to another person and— (i) arises under any workers compensation act, or (ii) arises out of any tort, economic performance occurs as the payments to such person are made. Subparagraphs (A) and (B) shall not apply to any liability described in the preceding sentence.

(D) Other items In the case of any other liability of the taxpayer, economic performance occurs at the time determined under regulations prescribed by the Secretary.

(A) In general Notwithstanding paragraph (1) an item shall be treated as incurred during any taxable year if— (i) the all events test with respect to such item is met during such taxable year (determined without regard to paragraph (1)), (ii) economic performance with respect to such item occurs within the shorter of— (I) a reasonable period after the close of such taxable year, or (II) 8½ months after the close of such taxable year, (iii) such item is recurring in nature and the taxpayer consistently treats items of such kind as incurred in the taxable year in which the requirements of clause (i) are met, and (iv) either— (I) such item is not a material item, or (II) the accrual of such item in the taxable year in which the requirements of clause (i) are met results in a more proper match against income than accruing such item in the taxable year in which economic performance occurs.

(B) Financial statements considered under subparagraph (A)(iv) In making a determination under subparagraph (A)(iv), the treatment of such item on financial statements shall be taken into account.

(C) Paragraph not to apply to workers compensation and tort liabilities This paragraph shall not apply to any item described in subparagraph (C) of paragraph (2).

For purposes of this subsection, the all events test is met with respect to any item if all events have occurred which determine the fact of liability and the amount of such liability can be determined with reasonable accuracy.