SECTION 3. SCOPE

This revenue procedure applies to an accrual method taxpayer that wants to change its method of accounting for liabilities arising out of the provision of services to the taxpayer under a Ratable Service Contract, as defined in section 4.02 of this revenue procedure, to the safe harbor method provided in section 4.01 of this revenue procedure.

Bulletin No. 2015–33 195 August 17, 2015

have occurred that establish the fact of Taxpayer’s contractually-required payment of $100,000 and the amount of Taxpayer’s liability under the contract can be determined with reasonable accuracy.

The contract does not satisfy the definition of a Ratable Service Contract in section 4.02 of this revenue procedure because the contract does not provide for services to be provided on a regular basis. Rather, the contract specifies that Y will provide to Taxpayer only one service, namely a completed and delivered impact study. Each instance of Y ’s work on the study during the contract period does not provide independent value to Taxpayer. Instead, each instance of work on the study is dependent on the previous and subsequent work on the study to achieve its completion. Thus, Taxpayer may not treat economic performance as occurring ratably over the term of the service contract pursuant to the safe harbor in section 4.02 of this revenue procedure and may not rely on the safe harbor to incur a liability for any portion of the $100,000 in 2015. Instead, economic performance occurs when the study is completed and a liability of $500,000 for this service is incurred upon its completion.

Example 4. On December 31, 2015, Taxpayer enters into a one-year service contract with X . Under the contract, X will provide various IT support and maintenance services to Taxpayer, such as providing help desk support to Taxpayer’s employees and maintaining Taxpayer’s existing software and web pages (IT services). The IT services will be provided on a daily basis through December 31, 2016. In addition, under the contract X will create an updated human resources software application for Taxpayer (HR software development service). Under the contract, Taxpayer will pay X a flat fee of $3,000 a month for the IT services and the HR software development service. The contract requires Taxpayer to pay for each month’s services by the end of the prior month. On December 31, 2015, Taxpayer makes a $3,000 payment to X for the IT services and HR software development to be provided in January 2016. Taxpayer reasonably expects X to provide the IT services in January. As of December 31, 2015, all events have occurred to establish the fact of Taxpayer’s $3,000 contractually-required payment and the amount of the liability is determinable with reasonable accuracy.

The contract does not meet the requirements of section 4.02 of this revenue procedure because the contract includes the HR software development service that is not provided on a regular basis. Under the terms of the contract, the HR software development service consists of only one service, an update to Taxpayer’s human resources software application. Each instance of X’s work on updating the software application during the contract period is dependent on the previous and subsequent work to complete the update and does not provide independent value to Taxpayer. Because the contract does not separately price the HR software development service, which does not meet the requirements for a Ratable Service Contract in section 4.02 of this revenue procedure, Taxpayer may not treat economic performance as occurring on a ratable basis over the term of the service contract pursuant to the safe harbor in section 4.02 of this revenue procedure.