In field advice, IRS disallows deduction for failure to satisfy all-events test

In a field attorney advice memorandum (FAA 20174901F), the IRS Large Business and International division held that an educational service provider could not accelerate the deduction for accrued tuition reductions offered to students because the liability was not fixed.

Under the facts of the FAA, the taxpayer provided education services by offering undergraduate and graduate degrees to students attending its institutions. The taxpayer initiated a tuition reduction program for students who successfully completed a term in Year 1 and also completed attendance for the first two weeks of the following academic term in Year 2. The taxpayer deducted an accrual for the tuition reductions in Year 1, even though the students had not yet completed attendance requirements for the first two weeks of the following academic term in Year 2.

Although the FAA is partially redacted, it implies that the taxpayer had the right to terminate the program and to disallow the accrued tuition reductions upon cancelling the program. The IRS denied the accelerated deduction by arguing that the accrued tuition reductions did not meet the all-events test in Year 1 because the taxpayer did not have a fixed liability for the tuition reductions by the end of the year.

Sharon Kay
Partner, Washington National Tax Office
T +1 202 861 4140

Dave Auclair
National Managing Principal,
Washington National Tax Office
T +1 202 521 1515

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