IRS Sheds Light On The Use Of The Recurring Item Exception

Moving is the worst.

Back in 2006, the wife and I fled New Jersey for a small mountain town, following in the footsteps of countless members of the witness protection program. We needed a moving company, and since my wife was on summer vacation at the time, she took charge of the process.

Understand, however, that my wife is a once-in-a generation gentle spirit. Shes a kindergarten teacher by trade, so shes largely sheltered from the seamy underbelly of the adult world.Unfortunately,theres a point wherebeing kind and trusting borderson navet.All of this is just to saythat my wife is the kind of person who would happily include our bank account in an email if she thought it would help the deposed prince of Nigeria.

So anyway, my wife interviews a potential mover over the phone, and receives a price quote thats one-third of the competitions. Sealing the deal, however, is the vibe she gets from the person on the other line; hes clearly just a great guy thats willing to move our stuff 2,000 miles for one-third the price out of the kindness of his heart, and not, say, a shiftless Russian mobster.

Of course, he turns out to be the latter. Thankfully, we narrowly avoided getting ripped off because my wife, in another display of her giving nature, was so enamored with the mover that she recommended them to her friend, who was also heading to Colorado the week before us. We got an inkling that something was amiss when the friend got to Colorado, only to find that all of her furniture was being held hostage at a weigh station in Kansas, and the movers wouldnt deliver it unless she wired them three-times the originally quoted price, in cash.

Needless to say, timing is everything.

But heres the thing: even when movers arent stealing your stuff and holding it ransom, theyre breaking it. Its so commonplace that most moving companies will execute a contract with you that allows you to seek reimbursement when your armoireis inevitably reduced to kindling.

This all leads us to the point at hand: last week, the IRS issued a Chief Counsel Advice regarding moving companies that offers a nice illustration of therules governing the timing of a deduction for an accrual method taxpayer; specifically, the interplay between the economic performance rules and the recurring item exception.

Facts of CCA 201442048

In the CCA, the moving company (Movers) offered customers a contract that formalizedMovers level of liability. The contract provided two options for placing a value on broken items: under the first option, Movers liability was capped at an amount equal to the greater of X or Y (these amounts are not explained in the CCA), while the second option limitedMovers liability to amounts lost or stolen.

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IRS Sheds Light On The Use Of The Recurring Item Exception