Mailing Address Error for Paper Filing of 2020 Form 1096
Adios to California? Here’s What You Need to Know

Final Revenue Recognition Regulations

The Tax Cuts and Jobs Act of 2017 (TCJA) included an amendment to Section 451(b) that requires accrual method businesses to recognize income no later than it is recognized in their financial statements. For many taxpayers, this accelerates taxable income that historically would not have been reported for tax purposes until the “all events test” was satisfied. Furthermore, the proposed regulations generally did not permit a reduction in this accelerated portion of the income for any costs.

Released late December, the final revenue recognition regulations (TD 9941) reflect legislative changes made by the TCJA and finalize regulations that were proposed in September 2019.

The final regulations are more favorable to taxpayers, providing that taxpayers with inventory can generally reduce the financial statement income by the cost of the goods sold consistent with Regulation 1.451-3. Additionally, the final regs provide that a taxpayer does not have to report any income that the taxpayer does not have a legal right to recover. Taxpayers with certain goods, as specified in the regulations, can utilize Section 451(c) when reporting the income. And special rules apply where the financial statement income includes advance payments for contracts that are subject to additional obligations.

While the final regulations are effective for tax years beginning after Dec. 31, 2020, they do permit taxpayers to choose to apply them retroactively for any tax year beginning after Dec. 31, 2017, if applied consistently in the intervening years. 

Final regulations Section 1.451-2 also permit taxpayers to elect to defer inclusion of income related to advance payments for goods and services to the year following the taxable year when it is received if the income is deferred in the financials. 

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name is required. Email address will not be displayed with the comment.)