Rev. Proc. 72-48

Section 1. Purpose.

The purpose of this Revenue Procedure is to clarify Revenue Procedure 65-17, C.B. 1965-1, 833, insofar as it relates to the inclusion as taxable income of interest attributable to an account receivable established in accordance with section 4.02 of such Revenue Procedure.

Sec. 2. Background.

.01 Revenue Procedure 65-17, provides, in part, that a qualifying taxpayer whose taxable income has been increased as a result of an allocation under section 482 may, as part of a closing agreement, elect to establish an account receivable from the other entity involved in the transaction in an amount determined under section 4.02 of such Revenue Procedure, and that no further tax liability will arise from timely payment of the receivable.

.02 Section 4.03 of Revenue Procedure 65-17, as amended, provides, in part, that the account receivable shall bear interest at an arms length rate, computed in the manner provided in section 1.482-2(a)(2) of the Income Tax Regulations, from the day after the date the account is deemed to have been created or from the first day of the taxpayer's first taxable year beginning after December 31, 1964, whichever is later, to the date of payment. It further provides that the interest so computed shall be accrued and included in the taxpayer's taxable income for each taxable year during which the account receivable is deemed outstanding.

Sec. 3. Conclusion.

The provisions of section 4.03 of Revenue Procedure 65-17, relating to the inclusion of interest in taxable income, applies regardless of whether the taxpayer uses the cash receipts and disbursements method of accounting or the accrual method of accounting. A taxpayer who establishes an account receivable pursuant to Revenue Procedure 65-17 and who computes taxable income using the cash receipts and disbursements method of accounting shall include in his income the interest on the account receivable as if he computed taxable income using the accrual method of accounting.

Sec. 4. Effect on other documents.

.01 Revenue Procedure 65-17, is clarified.

.02 Revenue Procedure 65-17 was previously discussed in Revenue Procedure 65-31, C.B. 1965-2, 1024; amended by Revenue Procedure 65-17, Amendment I, C.B. 1966-2, 1211; amplified and clarified by Revenue Procedure 70-23, C.B. 1970-2, 505; and amplified by Revenue Procedure 71-35, C.B. 1971-2, 573.