Update to Tax Treatment of Prepaid FDIC Premiums By: Charles J. Garrison, CPA Date: 1/21/2010 Background Cash-basis taxpayers and accrual-basis taxpayers that make a proper election can deduct amounts expended for prepaid expenses in the year in which the cash payments are made as long as the prepaid expense expires by the end of the following tax year.  Prepaid expenses for which the term extends beyond the end of the following tax year are not deductible until the year in which the expense is recognized.  This had led many to believe that the prepaid FDIC premium related to 2010 would be deductible in 2009 as the FDIC invoices clearly indicated the amounts related to 2010. IRS Position Although not publicly announced, sources in contact with the IRS National Office have indicated that the stated IRS position is that FDIC premiums related to years 2010 through 2012 are not deductible in 2009.  These sources indicate that the IRS has rejected the argument that the FDIC premium is separable into three distinct years, which would have made the 2010 premium deductible in 2009.  Instead, the IRS believes the payment is one contracted payment for the next 12 quarters and can only be deducted in the year during which the expense is recognized.  As such, the four quarterly payments related to 2010 will be deductible in 2010 and so on.  The IRS is not expected to make a formal announcement of its position.