SECTION 9. EFFECT ON OTHER

DOCUMENTS

Rev. Proc. 71–21 is modified and superseded. Rev. Proc. 2002–9 is modified and amplified to include this automatic change in the APPENDIX. The Deferral Method provided in this revenue procedure is available to qualifying taxpayers notwithstanding revenue rulings, revenue procedures, notices, or announcements published by the Service that may provide different rules for when advance payments must be included in gross income. See, e.g., Rev. Rul. 70–445, 1970–2 C.B. 101; Rev.

tract, J will replace or repair the cable converter box if it proves defective during the contract period. J will not allow a non-subscriber to rent a converter box. In December 2003, J receives payments from subscribers for January 2004 cable service and converter box use. For financial reporting purposes, J includes these payments in gross receipts for 2004. J uses the Deferral Method. The payments for cable services are included in gross income for 2004. Because a subscriber’s use of a converter box is ancillary to the provision of cable services by J, and because the converter box warranty is ancillary to the use of the converter box, J must include the entire advance payment in gross income for 2004.

(12) On January 1, 2003, K enters into, and receives advance payments pursuant to, a 5-year license agreement for its computer software. Under the contract, the licensee pays K both the first-year (2003) license fee and the fifth-year (2007) license fee upon commencement of the agreement. The fees for the second, third, and fourth years are payable on January 1 of each license year. For financial reporting purposes, K includes the fees in gross receipts for the respective license year. K uses the Deferral Method. For federal income tax purposes, K must include the firstyear license fee in gross income for 2003, the secondyear and the fifth-year license fee in gross income for 2004, the third-year license fee in gross income for 2005, and the fourth-year license fee in gross income for 2006.

(13) On July 1, 2003, L, who is in the business of selling off-the-shelf computer software and providing computer support, receives an advance payment for a 2-year “software maintenance contract” under which L will provide software updates if it develops an update within the contract period, as well as online and telephone customer support. For financial reporting purposes, L includes 1/4 of the payment in gross receipts for 2003, 1/2 in gross receipts for 2004, and the remaining 1/4 in gross receipts for 2005, regardless of when L provides updates or customer support. L uses the Deferral Method. For federal income tax purposes, L must include 1/4 of the payment in gross income for 2003 and 3/4 in gross income for 2004.

(14) Assume the same facts as Example 13, but L ceases to exist, on December 1, 2003, in a transaction to which § 381(a) does not apply. For federal income tax purposes, L must include the entire fee in gross income on December 1, 2003.