Closing Deferred Revenue
8 Pages Posted: 9 Dec 2009
Date Written: November 24, 2008
Abstract
The closing deferred revenue proposal would require a taxpayer to close ‘‘deferred revenue’’ as if the taxpayer received cash equal to the amount of the deferred revenue account when it is closed. Deferred revenue accounts arise because the taxpayer receives cash (or ‘‘debit-side’’ benefits) but does not then pay tax because the cash or other benefit is not yet earned or because of offsetting obligations. The accounting will not reflect the cash and the books will not balance unless the deferred revenue is closed into revenue or reduced cost. Current law has to be confirmed, however, because KPMG LLP sold billions of dollars of son-of-BOSS shelters that rested on the assumption that deferred revenue accounts could disappear without tax consequences.
The proposal is made as a part of the Shelf Project, a collaboration by tax professionals to develop and perfect proposals to help Congress when it needs to raise revenue. Shelf Project proposals are intended to raise revenue, defend the tax base, follow the money, and improve the rationality and efficiency of the tax system. The tax community can propose, follow, or edit proposals at http://www.taxshelf.org. A longer description of the Shelf Project can be found at ‘‘The Shelf Project: Revenue-Raising Projects That Defend the Tax Base,’’ Tax Notes, Dec. 10, 2007, p. 1077, Doc 2007-22632, 2007 TNT 238-37.
Shelf Project proposals follow the format of a congressional tax committee report in explaining current law, what is wrong with it, and how to fix it.
Copyright 2008 Calvin H. Johnson.
Keywords: tax reform,deferred revenue
JEL Classification: H20
Suggested Citation: Suggested Citation