Washington, D.C. -- The Internal Revenue Service has issued a revenue procedure that clarifies the rules for when a company uses the deferral method of accounting for advance payments that are received by the taxpayer for the sale of gift cards that are redeemable by an unrelated entity.

Revenue Procedure 2013-29 spells out what happens when a gift card is redeemable by an entity whose financial results are not included in the taxpayer's applicable financial statement, so the taxpayer should then recognize the payment in income to the extent that the gift card is redeemed. For a taxpayer without an applicable financial statement, the taxpayer will recognize the payment in income when it is earned, which, in this situation, is when the gift card is redeemed.

Any payment received by the taxpayer that is not recognized in income in the year of receipt must be recognized in the subsequent year.



Washington, D.C. -- The IRS has released TD 9625, final regs regarding the exception to the deduction limits on reimbursement or other expense allowance arrangements. The proposed regulations amend those applying the 274(e)(3) exception to reimbursement and other expense allowance arrangements involving employees, clarifying that these rules apply to "reimbursement or other expense allowance arrangements between payors and employees." Under the proposed regs, a payor may be an employer, an agent of the employer or a third party.

The regulations also provide that reimbursement or expense allowance involving independent contractors, clients or customers requires that the parties expressly identify who's subject to 274(a) and (n) limitations. If the agreement does not, limitations apply to the client if the independent contractor accounts to the client for expenses and to the independent contractor if the latter does not account to the client. The regs became effective at the beginning of August.



Washington, D.C. -- The Internal Revenue Service finalized regulations governing certain transfers of property to regulated investment companies and real estate investment trusts.

In TD 9626, the IRS issued final regulations under Section 337(d) of the Tax Code to provide guidance concerning certain transfers of property from a C corporation to a regulated investment company or a real estate investment trust. The regulations will affect the parties to such transactions, the IRS noted. The regulations took effect at the beginning of August.

On April 16, 2012, the IRS issued a notice of proposed rulemaking concerning certain transfers of property from a C corporation to a RIC or a REIT in the Federal Register. It received only one written comment, and no public hearing was requested or held. The Treasury Decision adopted the proposed regulations with only a few changes.

Section 1.337(d)-7 of the Tax Code generally provides that if the property of a C corporation becomes the property of a RIC or REIT by the qualification of that C corporation as a RIC or REIT or by the transfer of assets of that C corporation to a RIC or REIT in a conversion transaction, then the RIC or REIT will be subject to tax on the net built-in gain in the converted property under the rules of Section 1374 and the underlying regulations. This general rule, however, does not apply if the C corporation transferor makes a "deemed sale election" to recognize gain and loss as if it sold the converted property to an unrelated person at fair market value.

The IRS's notice of public rulemaking proposed to amend Section 1.337(d)-7 to provide two exceptions from the general rule. First, the general rule would not apply to the extent that the conversion transaction qualifies for nonrecognition treatment under either Section 1031 or Section 1033.

Second, a conversion transaction in which the C corporation that owned the converted property is a tax-exempt entity would not be subject to the general rule if the tax-exempt entity would not be subject to tax (such as under the unrelated business income tax rules of Section 511) on a gain resulting from a deemed sale election had such an election been made under Section 1.337(d)-7(c)(5).

The commenter requested clarification regarding the application of the tax-exempt exception.

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