Ruling allows manufacturers to accelerate cooperative advertising deductions.

• Author: Young, Barbara
• Position: IRS ruling

On July 30, 1998, the IRS released Rev. Rul. 98-39, which provides that a manufacturer's liability to pay a retailer for cooperative advertising is a service liability that becomes fixed under the all-events test in the year in which the advertising services are provided by the retailer. The ruling concludes that the retailer's filing of a claim for payment is not necessary to fix the manufacturer's liability. This conclusion reverses the Service's position in Letter Rulings (TAMs) 9343006, 9320001 and 9416004, in which the IRS concluded that the filing of the claim by the retailer was necessary to fix the manufacturer's liability.

Rev. Rul. 98-39 provides that a change in the time for deducting the cooperative advertising liability is an accounting method change that can be made automatically under Rev. Proc. 97-37. This procedure requires that a taxpayer attach Form 3115, Application for Change in Accounting Method, to the return for the year of change and send a copy to the IRS National Office. This favorable accounting method change can be made for any tax year for which...