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Advance Payment Proposed Regulations Released


Wayne Naegele

Advance Payment Proposed Regulations Released

Proposed regulations provide rules for accrual method taxpayers who receive advance payments. The proposed regulations include provisions affecting both taxpayers both with and without applicable financial statements (AFS), and describe and clarify the statutory requirements of Code Sec. 451(c).

Similar to Rev. Proc. 2004-34
The proposed regulations include many provisions similar to those of Rev. Proc. 2004-34, I.R.B. 2004-22, 991. For example the proposed regulations:

  • provide a similar deferral method for non-AFS taxpayers;
  • provide a list of items excluded from the definition of advance payment;
  • provide rules consistent with Rev. Proc. 2004-34 to ensure the acceleration of an advance payment when a taxpayer dies or ceases to exist, or when a taxpayer’s obligation is satisfied or otherwise ends; and
  • use the short tax year rules of Rev. Proc. 2004-34 for the AFS and non-AFS deferral methods
    The proposed regulations also provide additional definitions and clarifications.

Change in Accounting Method
The IRS intends to provide the procedures by which a taxpayer may change its method of accounting to use one of the deferral methods described in these proposed regulations. Until further guidance is issued, a taxpayer may continue to rely on Rev. Proc. 2004-34, as described in Notice 2018-35, I.R.B. 2018-18, 520.

Effective Date
The proposed regulations are to apply to tax years beginning on or after the date the final regulations are published in the Federal Register. Until the date the Treasury Decision adopting these regulations as final regulations is published in the Federal Register, a taxpayer may rely on these proposed regulations for tax years beginning after December 31, 2017, as long as the taxpayer: (1) applies all the applicable rules contained in these proposed regulations, and (2) consistently applies these proposed regulations to all advance payments.