Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-87

1957-1 C.B. 507

Sec. 173

Caution: Clarified by Rev. Rul. 64-127

IRS Headnote

Treatment, for Federal income tax purposes, of circulation expenditures by publishers who have consistently deferred both subscription income and subscription expense.

I.T. 3369, C.B. 1940-1, 46, modified.

Full Text

Rev. Rul. 57-87

Advice has been requested regarding the treatment of circulation expenditures attributable to prepaid subscription income, in view of the provisions of I.T. 3369, C.B. 1940-1, 46, and section 23(bb) of the Internal Revenue Code of 1939.

The taxpayer in the instant case has consistently filed Federal income tax returns on the basis of reporting only the allocable part of prepaid subscription revenue relating to that portion of the subscriptions to be fulfilled in that year and of deferring the remaining allocable portions of such revenue to subsequent years in relation to the subscriptions to be fulfilled in those years. Likewise, in determining its income, the taxpayer deferred all subscription expenses to the year to which they relate in accordance with the provisions of I.T. 3369, supra .

I.T. 3369, supra , as far as it is pertinent here holds that where a publisher has consistently reported an aliquot part of the subscription income for each year of the subscription period, all applicable expenses incurred during the year in which the subscriptions are obtained shall be spread allocably over the subscription periods in the same manner as subscription income.

However, section 204 of the Revenue Act of 1950 amended section 23 of the 1939 Code by adding a new subsection (bb) to provide for the deduction of expenditures (with certain exceptions) to establish, maintain, or increase the circulation of a newspaper, magazine, or periodical. This new section of the 1939 Code, subject to the conditions provided by subsections (c)(1) and (2) of section 204 of the Act, was effective for the taxable years beginning subsequent to December 31, 1945. The provisions of section 23(bb) of the 1939 Code read as follows:

SECTION 23.-DEDUCTIONS FROM GROSS INCOME.

In computing net income there shall be allowed as deductions: * * *

(bb) CIRCULATION EXPENDITURES.-Notwithstanding section 24(a), all expenditures (other than expenditures for the purchase of land or depreciable property or  for the acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical) to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical; except that the deduction shall not be allowed with respect to the portion of such expenditures as, under regulations prescribed by the Secretary, is chargeable to capital account if the taxpayer elects, in accordance with such regulations, to treat such portion as so chargeable. Such election, if made, must be for the total amount of such portion of the expenditures which is so chargeable to capital account, and shall be binding for all subsequent taxable years unless, upon application by the taxpayer, the Secretary permits a revocation of such election subject to such conditions as he deems necessary.

In view of the provisions of section 23(bb) of the 1939 Code, it is held that for years beginning subsequent to December 31, 1945, such expenditures are currently deductible in the year paid or incurred. Accordingly, to the extent that it requires or permits any deferral of expenditures to establish, maintain, or increase the circulation of any newspaper, magazine or periodical, I.T. 3369, supra , is modified.

Pursuant to the authority contained in section 7805(b) of the Internal Revenue Code of 1954, this modification shall be effective only with respect to the first open year of such taxpayer at the time that this Revenue Ruling is published in the Internal Revenue Bulletin. Expenditures paid or incurred in a year prior to the effective date of this Revenue Ruling but which were deferred to a subsequent year under I.T. 3369, supra , will be deductible in the year in which they would have been deductible had no modification occurred.