January 31, 2008

Deferral of Revenue Received from the Sale of Gift Cards - IRS Tier II Audit Issues

The IRS has elevated the deferral of gift card revenue to a Tier II examination issue and, as a consequence, is aggressively auditing the tax treatment of gift card programs. The IRS is primarily concerned with two fundamental issues. First, the IRS is examining whether income received by a taxpayer upon the sale of a gift card may be deferred or must be currently recognized. Second, assuming that deferral is appropriate, the IRS is considering the proper method of accounting for gift card revenue and how long the gift card income may be deferred. By the end of this program, listeners will be able to identify potential vulnerabilities in their tax treatment of gift card revenue and recognize where additional research on specific issues may be necessary.