Prepaid and Advance Income

Office of Chief Counsel
Internal Revenue Service memorandum
Number: 201013037
Release Date: 4/2/2010
CC:ITA:B01:IGlazman
POSTN-143533-09
Third Party Communication: None
Date of Communication: Not Applicable
UILC: 451.13-00 date: December 4, 2009 to: Robert E. Cudlip
Attorney
CC:LM:CTM:SD from: John P. Moriarty
Chief, Branch 1
(Income Tax and Accounting) subject: Factual clarification of Memorandum on reporting of advance payments.
This responds to your request for clarification of Chief Counsel Advice previously issued regarding the ability of a taxpayer to use the deferral method of Rev. Proc. 2004-34, 2004-1 C.B. 991, for advance payments received pursuant to a settlement agreement.
In a memorandum dated September 17, 2009, we concluded that, provided the taxpayer’s method of allocating the payments satisfies the requirements of section 5.02(4) of Rev. Proc. 2004-34, the taxpayer may use the deferral method of Rev. Proc.
2004-34 for advance payments received pursuant to the settlement agreement. The facts upon which that memorandum was based indicated that the taxpayer would recognize the advance payments for financial purposes over a period of two years.
Based on additional information brought to our attention, we now understand that for financial statement purposes the taxpayer will report the advance payments over the 15-year term of the settlement agreement. This change in facts does not affect the memorandum’s conclusion that the taxpayer may use the deferral method of Rev. Proc.
2004-34. If you have any questions regarding this memorandum or our conclusion, please contact Innessa Glazman at 202-622-5020.
This advice may not be used or cited as precedent.
POSTN-143533-09 2
CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS
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