Wednesday, January 5, 2011

Issue Number: RP-2011-16, RP-2011-17 & RP-2011-18

Revenue Procedure 2011-16 provides a safe harbor to real estate investment trusts (REITs) with respect to how interest on certain loans secured by real estate that have been modified in response to default or reasonably foreseeable default will be treated for purposes of the income tests under sections 856(c)(2) and (3) of the Internal Revenue Code. The revenue procedure also provides a safe harbor regarding the treatment of certain mortgage loans for purposes of the 75 percent asset test under section 856(c)(4)(A).

Revenue Procedure 2011-17 provides a safe harbor method of accounting for the treatment of gift cards issued to customers in exchange for returned merchandise. The rev. proc. allows these taxpayers to treat the issuance of a gift card in exchange for returned goods as (1) the payment of a cash refund in the amount of the gift card, and (2) the sale of a gift card in the amount of the gift card. The taxpayer then may account for the amount deemed received for the sale of the gift card under § 1.451-5 or Rev. Proc. 2004-34

Revenue Procedure 2011-18 extends the advance payment deferral method of accounting of Rev. Proc. 2004-34, 2004-1 C.B. 991, to accrual method taxpayers who sell gift cards that may be redeemed by another entity under a gift card service agreement. Rev. Proc. 2011-18 allows a taxpayer to apply the deferral method to a sale of a gift card (or gift certificate) if (1) the taxpayer is primarily liable to the customer (or holder of the gift card) for the value of the card until redemption or expiration, and (2) the gift card is redeemable by the taxpayer or by any other entity that is legally obligated to the taxpayer to accept the gift card from a customer as payment.

All three Revenue Procedures will be published in Internal Revenue Bulletin 2011-5 on January 31, 2011.

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