The IRS said it will follow the ruling of the Ninth Circuit Court of
Appeals in Westpac Pacific Food v. Commissioner
(97 AFTR2d 2006-3014) concerning timing of recognition of volume trade
discounts paid as cash advances. Westpac, a West Coast partnership of
grocery retailers, received advances from manufacturers in exchange for
its promises to purchase goods. The advances had to be repaid if Westpac
failed to buy the contracted amounts. The IRS and Tax Court held that
the advances were income when received; the Ninth Circuit ruled they
could be recognized as a reduction of cost of goods at the time of
purchase. For more on the decision, see “ Tax Matters,” JofA,
Dec. 06, page 80. In Rev. Proc. 2007-53, the IRS outlined how
accrual-method taxpayers may adopt the method, including automatic
consent to the change.
IRS Adopts Westpac
