Tackling Taxes

Rev. Proc. 2011- 17 and Rev. Proc. 2011-18 are welcome news in light of the harsh IRS examination positions taken on gift card transactions. Rev. Proc. 2011-17 discusses the treatment of gift cards issued in exchange for returned goods, while Rev. Proc. 2011-18 provides guidance on gift card sales by gift card companies. Rev. Proc. 2011-18 is effective for tax years ending on or after December 31, 2010. It provides a one-year deferral of income on advance payments received from the sale of gift cards that are redeemable for goods or services of the taxpayer or a third party. In effect, a gift card company is allowed a one-year income deferral for gift card sales. According to the revenue procedure, many commentators in the retail industry have contended that cash refunds and gift cards provided as refunds should be treated the same. To avoid disputes on proper characterization, provide better matching of income and costs and simplify recordkeeping, Rev. Proc. 2011-17 provides a safe-harbor treatment.