Albertson's, Inc., Petitioner-Appellant-Cross-Appellee v. Commissioner of Internal Revenue, Respondent-Appellee-Cross-Appellant

On December 30, 1993, we filed an opinion concerning various disputes between Albertson’s and the Internal Revenue Service. 38 F.3d 1046 (9th Cir.1993). We granted the government’s petition for rehearing as to Part II.B of the opinion, which concerned the appropriate tax treatment of deferred compensation agreements. Today we vacate Part II.B of the original opinion and affirm the Tax Court’s decision.

I. BACKGROUND

Deferred compensation agreements (“DCAs”) are agreements in which certain employees and independent contractors (“DCA participants”) agree to wait a specified period of time (“deferral period”) before receiving the annual bonuses, salaries, or director’s fees that they would otherwise receive on a current basis. During the deferral period, the employer uses the basic amounts of deferred compensation (“basic amounts”), which accumulate on an annual basis, as a source of working capital. At the end of the deferral period, the employer pays the participating individuals the basic amounts and an additional amount for the time value of the deferred payments that have accumulated on the basic amounts (“additional amount”). The time-value-of-money sums are also computed on…