Accounting for Credit Card Fees

Article excerpt

The Tax Court ruled on the proper accounting for annual fees received by credit card issuers in two recent cases: Barnett Banks of Florida Inc. v. Commissioner (106 T.C. no. 4, 1996) and Signet Banking Corp. v. Commissioner (106 T.C. no. 5, 1996). Both Barnett and Signet charged a fixed annual fee that was not based on the holder's credit line, card usage or account balance. Barnett's fee was refundable if the card was canceled, but Signet's was not and, under the express terms of the cardholder agreement, was paid when the card was issued and a credit limit was established: In Barnett, the bank was permitted to amortize the fee into income over 12 months, while in the Signet case, the fee was taxable income in the year of its receipt.

Revenue procedure 71-21 allowed taxpayers who use an accrual method to defer recognition as income of payment received in one year for services performed by the end of the succeeding year. Barnett benefited from the ruling even though it was unable to match income and expenses on an individual cardholder basis. …


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