REPEAL OF RESERVE FOR ACCRUAL OF VACATION PAY.

SEC. 10201. REPEAL OF RESERVE FOR ACCRUAL OF VACATION PAY. (a) General Rule.— Section 463 (relating to accrual of vacation pay) is hereby repealed. (b) Technical Amendments.— (1) Section 81 is hereby repealed. (2) Subparagraph (B) of section 404(b)(2) is amended to read as follows: “(B) Exception.— Subparagraph (A) shall not apply to any benefit provided through a welfare benefit fund (as defined in section 419(e)).”. (3) Section 404(a)(5) is amended by adding at the end thereof the following new sentence: “For purposes of this section, any vacation pay which is treated as deferred compensation shall be deductible for the taxable year of the employer in which paid to the employee.” (4) Paragraph (2) of section 419(e) is amended by inserting “or” at the end of subparagraph (B), by striking out “, or” at the end of subparagraph (C), and inserting in lieu thereof a period, and by striking out subparagraph (D). (5) Paragraph (5) of section 461(h) is amended to read as follows: “(5) Subsection not to apply to certain items.— This subsection shall not apply to any item for which a deduction is allowable under a provision of this title which specifically provides for a deduction for a reserve for estimated expenses.” (6) The table of sections for part II of subchapter B of chapter 1 is amended by striking out the item relating to section 81. (7) The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by striking out the item relating to section 463. 101 STAT. 1330–388 (c) Effective Date.— (1) In general.— The amendments made by this section shall apply to taxable years beginning after December 31, 1987. (2) Change in method of accounting.— In the case of any taxpayer who elected to have section 463 of the Internal Revenue Code of 1986 apply for such taxpayer’s last taxable year beginning before January 1, 1988, and who is required to change his method of accounting by reason of the amendments made by this section— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as having been made with the consent of the Secretary, and (C) the net amount of adjustments required by section 481 of such Code to be taken into account by the taxpayer— (i) shall be reduced by the balance in the suspense account under section 463(c) of such Code as of the close of such last taxable year, and (ii) shall be taken into account over the 4-taxable year period beginning with the taxable year following such last taxable year as follows: In the case of the: The percentage taken into account is: 1st year 25 2nd year 5 3rd year 35 4th year 35. Notwithstanding subparagraph (C)(ii), if the period the adjustments are required to be taken into account under section 481 of such Code is less than 4 years, such adjustments shall be taken into account ratably over such shorter period.