Signet Banking Corporation - Page 20

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          after payment of the fee.  On the contrary, the required act--the           
          issuance of a card--probably always or almost always occurred               
          before payment of the annual membership fee.  An example may help           
          to illustrate this point.  Assume petitioner issues a new card on           
          March 1 and bills for the annual membership fee on October 1.               
          In that situation, issuance of the card precedes payment of the             
          annual membership fee.  Thus, when the fee is paid, petitioner              
          has already performed one of the acts required by the cardholder            
          agreement, lending no support to reporting the income after the             
          petitioner receives the fee.  The same point would apply if the             
          card were issued for more than 1 year, as was petitioner’s                  
          general practice for MasterCards.                                           
               Now assume petitioner does not issue a card to a new                   
          customer until after the customer pays the annual membership fee.           
          In that case, assuming that issuance of a card is a service under           
          Rev. Proc. 71-21, supra, petitioner might not be required to                
          report the fee income until it issues the card because it is an             
          act required by the cardholder agreement.  This latter example              
          has no bearing on this case, however, because petitioner did not            
          show (or try to show) that it delayed initial issuance of a                 
          credit card until after it received annual membership fees from             
          any customers.                                                              
               Petitioner argues that, under section 3.06(b) of Rev. Proc.            
          71-21, supra, it may treat the annual membership fee as earned              
          ratably over the membership year because it was “not unreasonable           



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Last modified: May 25, 2011