Tackling Taxes

In both FAA 20082801F and TAM 200849015, the IRS rejected the gift card company's position that there was no current income at the time of the gift card sales under the claim of right doctrine. In FAA 20082801F, the taxpayer did not believe that the gift card company had gross income because Sub was not providing any goods or services for the cash collected. In TAM 200849015, the IRS distinguished the gift card receipts from nontaxable deposits on the grounds that under the applicable state law, a card holder cannot demand a full cash refund. In TAM 200849015, field attorney advice FM 20082801F and FAA 20093801F, the IRS also concluded that a gift card company did not qualify for income deferral under Reg. 1.451-5. The IRS suggested that Reg. 1.451-5 deferral can never apply to a taxpayer that does not own inventory. The position taken by the IRS on the IRS audit advices seems inconsistent with the content and intent of Rev. Proc. 2004-34. As suggested by Example 4 of the revenue procedure, a gift card company should qualify for a one year deferral.