Franchising & Distribution Law Blog

In response to the rapid growth of gift card sales and the variety of ways in which they are sold and redeemed, the IRS has been issuing guidance to address accounting issues associated with such sales. Most recently, the IRS issued Rev. Proc. 2013-29, which addresses the tax treatment of gift cards sold by one entity and redeemable by an unrelated entity. Prior to the issuance of Rev. Proc. 2013-29, if a taxpayer sold gift cards redeemable by an unrelated entity, the taxpayer would recognize as income the full value of the gift cards in the year of sale. The new guidance, however, allows a taxpayer to sell gift cards in one year, and in some circumstances, delay recognizing income from those sales until the subsequent year.