[Federal Register Volume 69, Number 130 (Thursday, July 8, 2004)]
[Rules and Regulations]
[Page 41192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15543]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9135]
RIN 1545-BB44


Rents and Royalties

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
inclusion in gross income of advance rentals. The regulations authorize 
the Commissioner to provide rules allowing for the inclusion of advance 
rentals in gross income in a year other than the year of receipt. The 
regulations will affect taxpayers that receive advance payments for the 
use of certain items (such as intellectual property and computer 
software) to be designated by the Commissioner.

DATES: Effective Date: These regulations are effective July 8, 2004.
    Applicability Date: The amendments made by these regulations apply 
after December 18, 2002.

FOR FURTHER INFORMATION CONTACT: Edwin B. Cleverdon, (202) 622-7900 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On December 18, 2002, the IRS published a notice of proposed 
rulemaking (REG-151043-02) in the Federal Register (67 FR 77450), 
proposing amendments to 26 CFR part 1 under section 61 of the Internal 
Revenue Code (Code) regarding the inclusion in gross income of advance 
rentals. The notice of proposed rulemaking invited comments and 
requests for a public hearing, but no comments were received and no 
public hearing was requested or held.
    Contemporaneously with the publication of the notice of proposed 
rulemaking, the IRS published a proposed revenue procedure in Notice 
2002-79 (2002-2 C.B. 964) that, when final, implements the amendments 
made by these final regulations. The proposed revenue procedure was 
finalized, with modifications, as Rev. Proc. 2004-34 (2004-22 I.R.B. 
991). Comments received in connection with the proposed revenue 
procedure, including comments concerning the proposed treatment of 
advance rentals, are addressed in Announcement 2004-48 (2004-22 I.R.B. 
998), which accompanies Rev. Proc. 2004-34.

Explanation of Provisions

    This document contains amendments to 26 CFR part 1 relating to the 
inclusion in gross income of advance rentals under section 61 of the 
Code. Prior to amendment, Sec.  1.61-8(b) provided that, except as 
provided in section 467 and the regulations thereunder, advance rentals 
must be included in gross income in the year of receipt regardless of 
the period covered or the method of accounting employed by the 
taxpayer. The amendments authorize the Commissioner to provide, through 
administrative guidance, rules for deferring income inclusion of 
advance rentals to a taxable year other than the year of receipt. This 
amendment ensures that the Commissioner, in modifying Rev. Proc. 71-21 
(1971-2 C.B. 549), may provide deferral rules for the use of 
intellectual property and computer software.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations and, because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, the notice of proposed 
rulemaking preceding this regulation was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business. The Chief Counsel for Advocacy did not submit 
any comments on the regulations.

Drafting Information

    The principal author of these regulations is Edwin B. Cleverdon of 
the Office of Associate Chief Counsel (Income Tax and Accounting). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec.  1.61-8  [Amended]

0
Par. 2. The first sentence of Sec.  1.61-8(b) is amended by adding the 
language ``and except as otherwise provided by the Commissioner in 
published guidance (see Sec.  601.601(d)(2) of this chapter),'' 
immediately after ``thereunder,''.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: June 30, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-15543 Filed 7-7-04; 8:45 am]
BILLING CODE 4830-01-P