Proposed regs. reflect amendments to all-events test and advance payments

In REG-104872-18, the IRS has proposed removing regulations on advance payments and long-term contracts to reflect amendments to Sec. 451 by the law known as the Tax Cuts and Jobs Act, P.L. 115-97.

Sec. 451(b), as amended, requires an accrual-method taxpayer to treat the all-events test for a particular item of gross income as met no later than when the item is taken into account as revenue in the taxpayer’s applicable financial statement or any other financial statement the IRS prescribes.

Sec. 451(c), as amended, requires an accrual-method taxpayer that receives any advance payment described in Sec. 451(c)(4) during the tax year to include it in income in the tax year of receipt or make an election to (1) include any portion of the advance payment in income in the tax year of receipt to the extent required under new Sec. 451(b); and (2) include the remaining portion in income in the following tax year. The election to defer advance payments of goods and services under new Sec. 451(c) is similar to the rules regarding the treatment of advance payments for goods, services, and other specified items in Rev. Proc. 2004-34.

Because new Sec. 451(c) and the election to defer advanced payments override the deferral method in Regs. Sec. 1.451-5, the IRS is proposing to remove that regulation and other regulations that cross-reference it.

The IRS also explained that the rules for changing a method of accounting under Sec. 446 from the method contained in Regs. Sec. 1.451-5 to another method will apply, but it asked for comments on whether any changes to existing procedural rules under Sec. 446 for changes in methods of accounting are necessary or desirable because of the removal of Regs. Sec. 1.451-5.

The IRS says the proposed rules will be effective the day they are published as final in the Federal Register.

— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.