AICPA Recommends IRS Adopt a Safe Harbor for Buyers and Sellers

April 28, 2015

Washington, D.C. (April 28, 2015) – The American Institute of CPAs (AICPA) sent recommendations to the Internal Revenue Service (IRS) last week concerning the tax treatment of deferred revenue in taxable asset acquisitions by both the buyer and the seller.

In the April 23 letter, Troy K. Lewis, CPA, CGMA, chair of the AICPA Tax Executive Committee, wrote, “Present law allows buyers and sellers discretion in choosing a tax method of accounting for deferred revenue liabilities in the context of a taxable asset acquisition.  We understand that the government is considering issuing guidance that would provide for consistent tax treatment of the deferred revenue liability by buyers and sellers in taxable asset acquisitions.  The AICPA believes that providing an elective tax safe harbor under which the buyer and seller agree to consistently treat the deferred revenue liability would reduce controversy between taxpayers and the Internal Revenue Service (IRS) and mitigate concerns the government might have related to inconsistent tax treatment by buyers and sellers in such transactions.”

The AICPA proposed  a safe harbor under which the buyer and the seller would agree to the value of the deferred revenue liability for tax purposes and each party would account for such value according to general tax principles in the tax year of the sale.  To the extent the actual liability differs from the agreed upon amount, such difference would be taken into account by the buyer as incurred (e.g., deducted or, if subject to section 263A, capitalized).

Lewis wrote that the AICPA believes this approach will provide clarity for taxpayers engaging in taxable asset transactions in addition to providing parity between the buyer and the seller.