The payments be prepaid income subject to tax

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Tranquility Funeral Home, Inc., your client, is an accrual basis taxpayer that sells preneed funeral contracts. Under these contracts, the customer pays in advance for goods and services to be provided at the contract beneficiary's death. These payments are refundable at the contract purchaser's request, pursuant to state law, any time until the goods and services are furnished. Tranquility, consistent with its financial accounting reporting, includes the payments in income for the year the funeral service is provided.
The IRS agent insists that the payments be prepaid income subject to tax in the year of receipt. Your client believes that the amounts involved are customer deposits. Write a letter to Tranquility that contains your advice about how the issue should be resolved. The client's address is 400 Rock Street, Memphis, TN 38152.

Reference no: EM13486482

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