FROM THE OFFICE OF PUBLIC AFFAIRS
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May 6, 2004
JS-1522
Treasury Issues Guidance On Advance Payments
The Treasury Department and IRS issued a revenue procedure that provides taxpayers that use an accrual method of accounting a limited deferral beyond the year of receipt for certain types of advance payments. The revenue procedure finalizes a proposed revenue procedure published in late 2002. An accompanying announcement discusses the most significant issues considered in connection with finalizing the revenue procedure.
Although, generally taxpayers must include advance payments for goods or services in income in the taxable year received, existing regulations allow taxpayers to defer certain advance payments for goods and prior guidance provided a safe harbor method for taxpayers to obtain a limited deferral to the following taxable year for certain advance payments for services.
"The existing rules led to considerable controversy regarding the types of advance payments that qualified for deferral," stated Acting Treasury Assistant Secretary for Tax Policy Greg Jenner. "The revenue procedure issued today will reduce controversy by expanding and clarifying the types of payments that qualify for deferral."
In addition to allowing deferral of payments for services, the revenue procedure also allows limited deferral of certain other payments. If only part of a payment qualifies for deferral, the revenue procedure allows partial deferral. Although deferrals under the new revenue procedure generally are limited to one taxable year, the revenue procedure includes a special rule allowing deferral for two taxable years in the case of certain short taxable years. In addition, the revenue procedure allows deferral to the following taxable year even if the term of the agreement extends beyond the end of the following taxable year. Taxpayers may also continue to use the existing regulations to defer advance payments for goods
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