Rev. Proc. 2013-26 [PDF 32 KB] reflects comments that the IRS received in response to Notice 2011-99, which contained a proposed revenue procedure that described the proportional method of accounting.
Rev. Proc. 2013-26 is effective for tax years that end on or after December 31, 2012.
The IRS in November 2011 issued Notice 2011-99, which set forth a proposed revenue procedure to allow a taxpayer to use a safe harbor method of accounting for OID on a pool of credit card receivables—the proportional method.
As proposed, the proportional method was intended to reduce administrative burdens and controversy for taxpayers and the IRS in computing OID accruals on a pool of credit card receivables under section 1272(a)(6).
The IRS requested comments on the proposed revenue procedure.
Read TaxNewsFlash-United States (November 29, 2011).
Changes from the proposal
The IRS received comments in response to Notice 2011-99, and among the changes included in Rev. Proc. 2013-26, in response to certain comments, are the following:
- Rev. Proc. 2013-26 applies to any taxpayer that holds a pool of credit card receivables and is not limited to credit card issuers.
- A taxpayer may use the proportional method for amounts treated by the revenue procedure as OID (for example, amounts that otherwise are market discount).
- When individual accounts are transferred out of a pool or written off, a taxpayer may attribute to those accounts a portion of a pool’s unaccrued OID that is proportional to their outstanding balances.
- A taxpayer may adopt the proportional method, or change to the proportional method under the automatic consent procedures, for a tax year that ends on or after December 31, 2012.
Rev. Proc. 2013-26 explains that:
- The proportional method generally allocates to a monthly accrual period an amount of OID that is equal to the unaccrued OID as of the beginning of the period multiplied by the quotient of the amount of the stated redemption price at maturity of the pool that is paid by cardholders during the period divided by the stated redemption price at maturity as of the beginning of the period.
- The proportional method generally produces the same results as the method described in section 1272(a)(6).
Rev. Proc. 2013-26 also describes the exclusive procedures by which a taxpayer may obtain the Commissioner’s consent to change to the proportional method.