Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com

December 8, 2008

The National Office recently issued a technical advice memorandum ( see TAM 200849015) holding that amounts received by a subsidiary from the sale of gift cards were includable in the subsidiary's gross income and did not qualify for deferral under Treas. Reg. § 1.451-5 or Rev. Proc. 2004-34 where the gift cards were redeemable at retail stores operated by other members of the subsidiary's consolidated group. The National Office held that deferral is available only if the taxpayer receiving the advance payment holds goods primarily for sale to customers in the ordinary course of its business, or provides goods or services in redemption of the gift cards.

In the future, it may be difficult for taxpayers to resolve this issue in examination or appeals. However, the issue may be a good candidate for litigation because a portion of the National Office's analysis in the TAM is questionable.

Law Offices of Donald A. Barnes, PLLC

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