The American Institute of CPAs has asked the Internal Revenue Service to issue updated guidance on how to account, from a tax perspective, prepayments received for live events that were canceled or deferred due to the COVID-19 pandemic.
“During the pandemic, taxpayers offering live events or live productions to customers were often significantly affected by government actions and restrictions implemented originally during 2020 and continuing into 2021 and 2022,” AICPA said in a February 7 letter to the IRS. “For affected taxpayers, there is currently a lack of clarity regarding when to recognize gross income from advance payments attributable to events that were canceled or significantly deferred due to COVID-19, how to account for refunds offered to customers during the pandemic, and how to account for the issuance of a credit to the customer in situations where the customer declines to receive a cash refund and instead requests applying the credit as a prepayment for different event or production to take place at a later date.”
AICPA is requesting the IRS issue new guidance to clarify what the federal income tax treatment of these payments is and made the following recommendations:
- for future live events canceled and the taxpayer’s obligation is satisfied by offering the customer the option of a refund or a credit to be applied to a future event, the advance payment should be recorded as income under Reg. §1.451-8(c)(4)(i)(B);
- the taxpayer recognizes a deduction for the refund or credit due as the refund occurs or the credit is issued under Reg. §1.461-4(g)(3), or, alternatively, the taxpayer recognizes a deduction when the refund liability satisfies the all-events test and the refund or credit otherwise satisfies the recurring item exception; and
- the choice by a customer to receive a credit to be applied to a future event instead of a refund constitutes the receipt of a new payment by the taxpayer subject to advance payment rules and applicable regulations.