Revisiting the tax treatment of customer loyalty and rewards programs

U.S. tax treatment of customer loyalty programs

Customer loyalty and rewards programs have and will continue to represent a significant liability for many consumer-oriented businesses, including retailers and service providers. The tax accounting treatment of these programs has been the subject of controversy and uncertainty because the financial accounting treatment may result in the recognition of a liability, while the tax rules allow a current deduction only in more limited situations.

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A recent decision of the U.S. Court of Appeals for the Third Circuit highlights the tax accounting issues and provides guidance that may be helpful for taxpayers, particularly those in Delaware, New Jersey, and Pennsylvania (the states within the Third Circuit). In addition, pending mandatory changes in the financial accounting treatment of customer revenue may make this an ideal time to re-evaluate the tax accounting treatment of these programs as an important component of the transition to the new financial accounting standards.

 

Read a June 2016 report [PDF 166 KB] prepared by KPMG LLP: What’s News in Tax: Revisiting the Tax Treatment of Customer Loyalty and Rewards Programs

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