CCA 201013037: IRS confirms deferral method for settlement-agreement payments

Plain-English summary

Chief Counsel advice clarified an earlier memorandum concerning whether a taxpayer could use the deferral method in Rev. Proc. 2004-34 for advance payments received under a settlement agreement. The taxpayer’s financial reporting period changed from two years to the 15-year term of the agreement. The advice concluded that this change in facts did not affect the earlier conclusion that the taxpayer could use the deferral method, provided the payment-allocation method met the revenue procedure’s requirements.

Ruling snapshot

• Question: Does a change in the financial-reporting period affect eligibility to defer settlement-agreement advance payments?
• Outcome: Advice given
• Key authorities: IRC § 451; Rev. Proc. 2004-34, § 5.02(4)

Full text (IRS public release)

Office of Chief Counsel
Internal Revenue Service memorandum
Number: 201013037
Release Date: 4/2/2010
CC:ITA:B01:IGlazman
Third Party Communication: None
POSTN-143533-09
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

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