August 25, 2010
It bears repeatingCash incentives must be capitalized, IRS says
Businesses sometimes make upfront incentive payments to customers to get them to enter into agreements to buy products.
In a recent private letter ruling, the IRS concluded that incentive payments made by a manufacturer must be capitalized, rather than deducted currently, if the payments are made in connection with an agreement requiring the customer to buy a minimum number of products. However, under the facts presented in the letter ruling, incentive payments that did not lock customers into minimum purchases could be currently deducted.
Read more in the private letter ruling.
Contact our firm if you have any questions or comments about this article.
The technical information here is necessarily brief. No final conclusion on
these topics should be drawn without further review and consultation. Please
be advised that, based on current IRS rules and standards, the advice contained
herein is not intended to be used, nor can it be used, for the avoidance of any
tax penalty assessed by the IRS.
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