IRS Norms Regarding Gift Card Should be Changed: AICPA
With an objective to transform the way retail gift cards are being treated, the American Institute of CPAs have recommended that Internal Revenue Service related guidance should be modified. The matters related to issuing as well as redeeming gift cards are being tackled by organizations that are financially not related to the entire transaction.
Earlier, the programs related to gift cards were restricted and only the retail brand’s owner was liable for matters associated with redeeming and sale of cards. However, at present both retailers as well as other organizations are handing matters related to card programs and settling the transactions as per the service agreements.
However, as per the existing IRS norms, issues related to deferral process eligibility arise when the redemption process involves 2 organizations that have not consolidated results related to finance.
In his response to IRS, AICPA’s Tax Executive Committee chairperson, Patricia Thompson stated that if the organization that is redeeming the card is not financially associated with the party that has issued the card, the issuing organization will not identify any amount of revenue that comes from the gift card receipt in the revenues that are applicable in its statement as that particular revenue amount is taken into account only by the financially unrelated redeeming organization upon the sale of services and merchandise.
AICPA has further provided a solution that will help in rectifying the problem. AICPA stated that IRS should also include the following sentences in their revenue process. IRS should state that a taxpayer who is selling gift cards that can be redeemed by organizations whose financial results have not been mentioned in the financial statement of the taxpayer shall be considered as a taxpayer who does not have a financial statement that is applicable with regard to gift cards, which are actually redeemable by organizations that are unrelated.
AICPA is a professional national body comprising of public accountants who have been certified appropriately. It consists of as many as three lac seventy seven thousand member. The body gives suitable suggestions and advises to their customers on matters related to state, international and federal tax. The body also prepares tax returns and income for numerous American citizens.