The rules for the deductibility of prepaid expenses are riddled with exceptions to the basic premise that neither cash nor accrual-basis taxpayers ought to deduct any prepayment except to the extent that the purchase - whether it is in the form of an asset or a service - is used in the same tax year. Grace periods, exceptions and additional restrictions can all change a result. The latest variation on the theme of "things are not always what they appear," comes in the form of a chief counsel's advice memorandum.
AM 2007-009 holds that the exceptions to the economic performance rule in determining when a prepayment is deductible must be applied "all-or-nothing." The chief counsel's office believes that neither the three-and-a-half-month rule in Reg. §1.461-4(d)(6) nor the recurring item exception in Reg. §1.461-5 authorize a taxpayer to apportion a deduction so that part of the total deduction may be taken in an earlier tax year.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access