[Congressional Record Volume 147, Number 131 (Wednesday, October 3, 2001)]
[Senate]
[Page S10165]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAHAM:
  S. 1496. A bill to clarify the accounting treatment for Federal 
income tax purposes of deposits and similar amounts received by a tour 
operator for a tour arranged by such operator; to the Committee on 
Finance.
  Mr. GRAHAM. Madam President, today I am introducing the Tour 
Operators Up-front Deposit Relief, TOUR, Act. This legislation codifies 
a longstanding practice used by the tour operator industry to account 
for prepaid deposits received in advance of a customers travel.
  A tour operator puts together travel ``packages'' often involving a 
number of different elements: airlines, ground transportation, hotels, 
restaurants, local guides and other services for one or more 
destinations. Services often include the direct provision of tour 
components such as motor coaches. The packages are sold to the public, 
usually through travel agents. Approximately 70 percent of retail 
travel agent sales involve tour operator packages. A vacation package 
combines multiple travel elements into an all-inclusive price. A tour 
is a trip taken by a group of people who travel together and follow a 
pre-planned itinerary. In both instances, the travel has been planned 
by professionals whose group purchasing power insures substantial 
savings. In addition, prepayment covers all major expenses which 
minimizes budgeting concerns.
  Tour operators employ a long standing, universally accepted method of 
accounting which recognizes deposits as income upon the date of 
departure of the passenger. This treatment defers income recognition 
while the customer still has the right to cancel the travel without 
substantial conditions and prior to the tour operator's performing many 
of the tasks and making many of the commitments required to insure a 
timely, safe and reliable trip.
  Recently, the Internal Revenue Service, IRS, has adopted a position 
in selected tour operator audits which would, if generally applied, 
require virtually all tour operators to change their method of 
accounting for deposits. The IRS position is that tour operators must 
recognize deposits as income upon receipt even though they may not 
incur expenses for months, or in some cases, more than a year. This 
position is in direct contrast to guidance previously provided by the 
IRS. Revenue Procedure 71-21 acknowledges that accrual basis taxpayers 
should be allowed to defer advanced payment for services under certain 
circumstances but has improperly refused to interpret this ruling to 
apply to tour operators.
  If the IRS continues to pursue its position, it will raise the cost 
of operations for tour operators. This added cost will be passed on to 
Americans seeking to travel. Given the difficulties facing this 
industry in light of the events of September 11, the IRS position is 
particularly misguided.
  The legislation being introduced today clarifies that Revenue 
Procedure 71-21 applies to the tour operator industry. Under this 
Procedure, deposits become taxable income on the date the tour departs.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1496

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Tour Operators Up-Front-
     Deposit Relief (TOUR) Act''.

     SEC. 2. METHOD OF ACCOUNTING FOR DEPOSITS RECEIVED BY ACCRUAL 
                   BASIS TOUR OPERATORS.

       In the case of a tour operator using an accrual method of 
     accounting, amounts received from or on behalf of passengers 
     in advance of the departure of a tour arranged by such 
     operator--
       (1) shall be treated as properly accounted for under the 
     Internal Revenue Code of 1986 if they are accounted for under 
     a method permitted by Section 3 of Revenue Procedure 71-21, 
     and
       (2) for purposes of Revenue Procedure 71-21, shall be 
     deemed earned as of the date the tour departs.

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