[Federal Register Volume 83, Number 199 (Monday, October 15, 2018)]
[Proposed Rules]
[Pages 51904-51906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22025]



Internal Revenue Service

26 CFR Parts 1 and 602

RIN 1545-BO66

Removal of Regulations on Advance Payments for Goods and Long-
Term Contracts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.


SUMMARY: This notice of proposed rulemaking proposes to streamline IRS 
regulations by removing regulations that are no longer necessary after 
the enactment of recent tax legislation. Specifically, these 
regulations would remove existing regulations regarding advance 
payments for goods and long-term contracts. The regulations would 
affect accrual method taxpayers who receive advance payments for goods, 
including those for inventoriable goods.

DATES: Written or electronic comments and requests for a public hearing 
must be received by January 14, 2019.

ADDRESSES: Send submissions to: CC:PA: LPD:PR (REG-104872-18), Room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
104872-18), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW, Washington, DC, or sent electronically, via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-104872-18).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Charles Gorham, (202) 317-5091, or Joanna L. Trebat, (202) 317-6890; 
concerning submissions of comments and requests for a hearing, Regina 
Johnson, (202) 317-6901 (not toll-free numbers).


Background and Explanation of Provisions

    This document proposes to remove Sec.  1.451-5 of the Income Tax 
Regulations (26 CFR part 1), and its cross-references, relating to the 
treatment of advance payments for goods and long-term contracts under 
section 451 of the Internal Revenue Code (Code).
    In general, section 451 provides that the amount of any item of 
gross income is included in gross income for the

[[Page 51905]]

taxable year in which it is received by the taxpayer, unless, under the 
method of accounting used in computing taxable income, the amount is to 
be properly accounted for as of a different period.
    Under Sec.  1.451-1, accrual method taxpayers generally include 
items of income in the taxable year when all the events have occurred 
that fix the right to receive the income and the amount of the income 
can be determined with reasonable accuracy (the ``all events'' test).
    Section 1.451-5 generally allows accrual method taxpayers to defer 
the inclusion of income for advance payments for goods until the 
taxable year in which they are properly included in income under the 
taxpayer's method of accounting for federal income tax purposes if that 
method results in the advance payments being included in gross income 
no later than when the advance payments are recognized in gross 
receipts under the taxpayer's method of accounting for financial 
reporting purposes.
    Section 13221 of ``An Act to provide for reconciliation pursuant to 
titles II and V of the concurrent resolution on the budget for fiscal 
year 2018,'' Public Law 115-97 (the ``Act''), amended section 451 by 
redesignating section 451(b) through (i) as (d) through (k) and adding 
new subsections (b) and (c).
    New section 451(b) generally requires that for accrual method 
taxpayers the all events test with respect to a particular item of 
gross income must not be treated as met any later than when the item is 
taken into account as revenue in a taxpayer's applicable financial 
statement, or such other financial statement as the Secretary may 
    New section 451(c) generally requires an accrual method taxpayer 
that receives any advance payment described in section 451(c)(4) during 
the taxable year to include the advance payment in income in the 
taxable year of receipt or make an election to: (1) Include any portion 
of the advance payment in income in the taxable year of receipt to the 
extent required under new section 451(b); and (2) include the remaining 
portion of the advance payment in income in the following taxable year. 
The election to defer advance payments of goods and services under new 
section 451(c) is similar to the rules regarding the treatment of 
advance payments for goods, services, and other specified items 
provided in Revenue Procedure 2004-34, 2004-1 CB 991. See H.R. Rep. No. 
115-466, at 429 (2017) (Conf. Rep.).
    New section 451(c) and its election to defer advance payments 
override the deferral method provided by Sec.  1.451-5. See H.R. Rep. 
No. 115-466, at 429 n.880 (2017) (Conf. Rep.). Accordingly, the 
Treasury Department and the IRS propose to remove Sec.  1.451-5 and its 
cross references. Removing Sec.  1.451-5 also will ensure that the new 
deferral rules of section 451(c) apply uniformly and consistently to 
all taxpayers as well as simplify tax administration.
    The rules of section 446 regarding changes in methods of accounting 
will apply to taxpayers changing a method of accounting for advance 
payments from a method described in Sec.  1.451-5 to another method. 
The Treasury Department and the IRS request comments on whether any 
changes to existing procedural rules under section 446 for changes in 
methods of accounting are necessary or desirable as a result of 
removing Sec.  1.451-5.

Proposed Applicability Date

    The removal of these regulations would apply as of the date the 
Treasury decision adopting this notice of proposed rulemaking is 
published in the Federal Register.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations. Because the 
proposed 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, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are timely submitted 
to the IRS in the preamble under the ADDRESSES section. All comments 
submitted will be made available at www.regulations.gov for public 
inspection and copying.
    A public hearing will be scheduled, if requested, by any person who 
timely submits comments. If a public hearing is scheduled, notice of 
the date, time, and place for the hearing will be published in the 
Federal Register.

Drafting Information

    The principal author of this document is Joanna L. Trebat, Office 
of the Associate Chief Counsel (Income Tax and Accounting). Other 
personnel from the IRS and Treasury Department participated in its 

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are proposed to be amended as 


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

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

Par. 2. Section 1.381(c)(4)-1 is amended by revising the second 
sentence of paragraph (b)(2) to read as follows:

Sec.  1.381(c)(4)-1  Method of accounting.

* * * * *
    (b) * * *
    (2) * * * The installment method under section 453, the mark-to-
market method under section 475, the amortization of bond premium under 
section 171, the percentage of completion method under section 460, the 
recurring item exception of Sec.  1.461-5, and the income deferral 
method under section 455 are examples of special methods of accounting. 
* * *
* * * * *
Par. 3. Section 1.382-7 is amended by revising the third sentence of 
paragraph (a) to read as follows:

Sec.  1.382-7  Built in gains and losses.

    (a) * * * Examples to which this paragraph (a) will apply include, 
but are not limited to, income received prior to the change date that 
is deferred under section 455 or Rev. Proc. 2004-34 (2004-1 CB 991 
(June 1, 2004)) (or any successor revenue procedure) (see Sec.  
* * * * *

Sec.  1.451-5  [Removed]

Par. 4. Section 1.451-5 is removed.

Sec.  1.861-18  [Amended]

Par. 5. Section 1.861-18 is amended in paragraph (i)(4) by:

[[Page 51906]]

1. Removing Example 2;
2. Designating Examples 1 and 3 as paragraphs (i)(4)(i) and (ii), 
respectively; and
3. In the heading for newly designated paragraph (i)(4)(ii), removing 
``3'' and adding ``2'' in its place.

Sec.  1.6655-0  [Amended]

Par. 6. Section 1.6655-0 is amended by removing the entries for Sec.  
1.6655-2(f)(3)(i) and (f)(3)(i)(A) and redesignating the entry for 
Sec.  1.6655-2(f)(3)(i)(B) as Sec.  1.6655-2(f)(3)(i).

Sec.  1.6655-2  [Amended]

Par. 7. Section 1.6655-2 is amended by removing paragraphs (f)(3)(i) 
heading and (f)(3)(i)(A) and redesignating (f)(3)(i)(B) as (f)(3)(i).
Par. 8. Section 1.6655-6 is amended in paragraph (c) by:
1. Revising the heading and introductory text;
2. Removing Example 1;
3. Designating Example 2 as paragraph (c)(1) and revising the heading 
of newly designated paragraph (c)(1); and
3. Adding a reserved paragraph (c)(2).
    The revisions read as follows:

Sec.  1.6655-6   Methods of accounting.

* * * * *
    (c) Example. The following example illustrates the rules of this 

    Example. * * *
* * * * *


Par. 9. Add an authority citation for part 602 to read as follows:

    Authority: 26 U.S.C. 7805.

Sec.  602.101  [Amended]

Par. 10. Section 602.101 is amended by removing the entry for Sec.  
1.451-5 and the parenthetical authority citation at the end of the 

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2018-22025 Filed 10-12-18; 8:45 am]