The Federal Tax Code is riddled with landmines. These "traps for the unwary" are a major source of the complexity about which American businesses complain. One such trap is illustrated by a recent case involving the timing of Federal tax deductions for California state income taxes paid by Wells Fargo bank.
Accrual method taxpayers normally deduct a liability (such as a state income tax) in the year in which the "all-events test" is met. That test requires that (1) all the events that establish the fact of a liability have occurred, and (2) the amount of that liability is determinable with reasonable accuracy. In most cases, actual payment meets the all-events test.