- 22 -
method reconciles financial and regulatory accounting with tax
accounting and certainly without undue deferral. The purpose of
this reconciliation is to "facilitate reporting and verification
of such items from the standpoint of both the taxpayers affected
and the Internal Revenue Service." Rev. Proc. 71-21, sec. 2.
Petitioner's method does that. Respondent's demand for a
matching of the fee income with the expenses incurred for
specific services would impose an undue burden on petitioner.
Finally, if the credit card is cancelled, petitioner makes a pro
rata refund of the fee for the number of months remaining in the
1-year period. Thus, if anything, petitioner's method provides a
more reasonable matching of income and expense than what
respondent seems to espouse.10
We conclude that petitioner is eligible to defer its income
from credit card fees under Rev. Proc. 71-21. Respondent has
declared that deferral of income according to this revenue
procedure is an acceptable method of accounting. Rev. Proc. 71-
21, sec. 3.14.
Where respondent fails to observe self-imposed limits upon
10 This case is factually distinguishable from Signet
Banking Corp. v. Commissioner, 106 T.C. ___ (1996). The
cardholder agreement in that case provided that the membership
fee was nonrefundable and was paid in consideration of the
issuance of the card and the establishment of the cardholder's
credit limit. The agreement here was materially different. The
annual fee was paid for services and was refundable to the
cardholder on a pro rata basis if the card was cancelled for any
reason during the 1-year period.
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