Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 72-78

1972-1 C.B. 45

Sec. 61
Sec. 162

IRS Headnote

Advance commissions received by a cash basis salesman are includible in gross income in the year received; repayment of portions of such commissions are deductible business expenses in the year repaid, subject to section 1341 of the Code; O.D. 19 superseded.

Full Text

Rev. Rul. 72-78 /1/

A taxpayer, an advertising salesman who uses the cash receipts and disbursements method of accounting, was advanced commissions for services he rendered. These commissions were reported by him as gross income for the taxable year received. Some customers failed to pay their obligations in the following year and the taxpayer repaid a portion of the commissions received and reported in the prior year.

Held, the advances are includible in gross income in the year received by the taxpayer. Further, the portion of the commissions received and reported as gross income, that he repaid to his employer in the following year owing to the failure of customers to pay for advertising, are deductible as a business expense for the year in which such commissions were repaid.

Held further, if the amount repaid is in excess of $3,000, the provisions of section 1341 of the Internal Revenue Code of 1954 are applicable.

O.D. 19, C.B. 1, 67 (1919), is hereby superseded, since the position stated therein is set forth under the current statute and regulations in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.