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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 with and without applicable financial statements (AFS), and describe and clarify the statutory requirements of Internal Revenue Code (IRC) Section 451(c).

Similar to Revenue Procedure (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 taxpayers may change their 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.

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