PLR 200817029: Deferred advance payments need no earnings and profits adjustment

Plain-English summary

A corporation asked how to compute earnings and profits when it defers certain advance payments under an accepted accounting method. The IRS ruled that the corporation need not make a separate earnings and profits adjustment under § 312 for payments properly deferred under Rev. Proc. 2004-34. The ruling ties earnings and profits to the accounting method properly used to compute taxable income. It expressly leaves open whether any particular advance payment qualifies for deferral under that procedure.

Ruling snapshot

• Question: Must the corporation adjust earnings and profits for advance payments deferred under Rev. Proc. 2004-34?
• Outcome: Approved: no adjustment for payments properly deferred.
• Key authorities: IRC § 312; Treas. Reg. § 1.312-6(a); Rev. Proc. 2004-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200817029
Third Party Communication: None
Release Date: 4/25/2008
Date of Communication: Not Applicable
Index Number: 312.01-00
Person To Contact:
--------------------------
-----------------, ID No. -------------
-------------------------------------------- Telephone Number:
---------------------
---------------------
--------------------------------------
Refer Reply To:
--------------------------------------
CC:CORP:B02
PLR-148902-07
Date:
January 29, 2008

Legend

Taxpayer = ----------------------
--------------------------------------------------------------------

State A = -------------

Business B = ------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
-------------------------------------------------------------

Dear ----------------:

This responds to your authorized representative’s private letter ruling request dated October 31, 2007. Specifically, Taxpayer requests a ruling that it does not need to make any adjustment in computing its earnings and profits under Internal Revenue Code § 312 for advance payments properly deferred under Rev. Proc. 2004-34, 2004-1 C.B. 991. The material information provided in that letter and in subsequent correspondence is summarized in PLR-148904-07, and is incorporated herein by reference.

SUMMARY OF FACTS

Taxpayer is a State A corporation engaged in Business B that files its federal income tax return on an accrual basis and a calendar year. The facts are the same as those set forth in PLR-148904-07. We understand that in PLR-148904-07, the Service ruled that Taxpayer may use the deferral method of accounting prescribed in Rev. Proc. 2004-34, 2004-1 C.B. 991, with respect to certain advance payments received by Taxpayer.

PLR-148902-07
2

ANALYSIS

Pursuant to Treas. Reg. § 1.312-6(a), the determination of the amount of a corporation’s earnings and profits under § 312 will be dependent upon the method of accounting properly employed in computing the corporation’s taxable income. Treas. Reg. § 1.446- 1(a)(1) provides that the term "method of accounting" includes not only the overall method of accounting of the taxpayer but also the accounting treatment of any item. Section 5.02(1)(a) of Rev. Proc. 2004-34 provides that a taxpayer within the scope of that revenue procedure that chooses to use the “Deferral Method” set forth in the revenue procedure is using a proper method of accounting under Treas. Reg. § 451-1. Section 8 of Rev. Proc. 2004-34 details how a taxpayer may adopt or change to the deferral method for advance payments.

RULINGS

Based solely on the information submitted and representations made, we rule:

Taxpayer need not make any adjustment in computing its earnings and profits under § 312 of the Code for advance payments properly deferred under Rev. Proc. 2004-34, 2004- 1C.B. 991. Treas. Reg. § 1.312-6(a); see Rev. Rul.
79-68, 1979-1 C.B. 133.

CAVEATS AND PROCEDURAL STATEMENTS

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express no opinion as to whether any of the advance payments mentioned above are properly deferred under Rev. Proc. 2004-34.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

PLR-148902-07
3

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

______
Alison Burns
Chief, Branch 2
Office of Associate Chief Counsel (Corporate)

cc: