Leawood, KS – February 2, 2020: The Internal Revenue Service and Department of Treasury issued final regulations to remove Treas. Reg. § 1.451-5. The removed regulation allowed for a two year deferral for taxpayers to delay reporting advance payments to income.
The change impacts some prepaid card programs, particularly in the closed loop gift card space, to the extent the issuer was using the two year deferral to defer income recognition on card purchases under the rule that advanced payments for future goods and serves are taxable at the time of the payment.
The Internal Revenue Code, 26 U.S. Code § 451(c) still allows for a one year tax deferral method under the accrual method of accounting for advance payments, but with the removal of Treas. Reg. § 1.451-5 the guidance supporting a two year tax deferral has been removed.
For more information visit: Rules and Regulations
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