[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.466-2]

[Page 290-292]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.466-2  Special protective election for certain taxpayers.

    (a) General rule. Section 373(c) of the Revenue Act of 1978 (92 
Stat. 2865) allows certain taxpayers, who in prior years have accounted 
for discount coupons under a method of accounting reasonably similar to 
the method described in Sec. 1.451-4, to elect to treat that method of 
accounting as a proper one for those prior years. There are several 
differences between this protective election and the section 466(d) 
election. First, the protective election

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applies only to a single continuous period of taxable years the last 
year of which ends before January 1, 1979. Second, an otherwise 
qualifying protective election may apply to coupons which are discount 
coupons but which would not be treated as qualified discount coupons 
under Code section 466. Third, certain expenses such as the cost of 
redemption center service fees, and amounts that are payable to the 
retailer (or other person redeeming the coupons from the person 
receiving the price discount) for services in redeeming the coupons but 
that are not stated on the coupon, can be subtracted from gross receipts 
for prior years covered by a protective election (if treated as 
deductible under the accounting method for such years), even though such 
expenses would not be deductible under Code section 466.
    (b) Requirements. In order to qualify for this special protective 
election, the following conditions must be met:
    (1) For a continuous period of one or more prior taxable years, (the 
last year of which ends before Jan. 1, 1979), the taxpayer must have 
used a method of accounting for discount coupons that is reasonably 
similar to the method provided in Sec. 1.451-4 or its predecessors 
under the Internal Revenue Code of 1954;
    (2) The taxpayer must make an election under section 466 of the 
Internal Revenue Code of 1954 according to the rules contained in Sec. 
1.466-3 for its first taxable year ending after December 31, 1978; and
    (3) The taxpayer must make an election under section 373(c) of the 
Revenue Act of 1978 according to the rules contained in Sec. 1.466-4 
for its first taxable year ending after December 31, 1978.
    (c) Amount to be subtracted from gross receipts. The amount the 
taxpayer may subtract under this section for the redemption costs of 
coupons shall include only:
    (1) Costs of the type permitted by Sec. 1.451-4 to be included in 
the estimated average cost of redeeming coupons, plus
    (2) Any amount designated or referred to on the coupon payable by 
the taxpayer to the person who allowed the discount on a sale by such 
person to the user of the coupon.

Nothing in this paragraph shall allow an item to be deducted more than 
once.
    (d) Right to amend prior tax returns. This paragraph applies only to 
those taxpayers who have agreed in a prior year to discontinue the use 
of the method of accounting described in Sec. 1.451-4 for discount 
coupon redemptions. If the taxpayer used such method of accounting on 
the original return filed for the prior taxable year, and if any such 
year is not closed under the statute of limitations or by reason of a 
closing agreement with the Internal Revenue Service, a taxpayer who has 
made a protective election may file an amended return and a claim for 
refund for such years. In this amended return, the taxpayer should 
account for its discount coupon redemptions, according to the method of 
accounting described in Sec. 1.451-4. This is not to be construed, 
however, to abrogate in any way the rules regarding the close of taxable 
years due to the statute of limitations or a binding closing agreement 
between the Internal Revenue Service and the taxpayer.
    (e) Suspense account not required. If the following three conditions 
are satisfied, the taxpayer need not establish the suspense account 
otherwise required by section 466(e). First, the taxpayer must make a 
timely election under these rules to protect prior years. Second, the 
method of accounting used in those years must have been used for all 
discount coupons issued by the taxpayer in those years in all the 
taxpayer's separate trades or

businesses in which coupons were issued. Third, either before or after 
an amendment to the taxpayer's tax returns as described in paragraph (d) 
of this section, a method of accounting reasonably similar to the method 
of accounting described in Sec. 1.451-4 must have been used for the 
taxable year ending on or before December 31, 1978. If these conditions 
are met, the taxpayer will treat the election of the method under 
section 466 as a change in method of accounting to which the rules in 
section 481 and the regulations thereunder apply.
    (f) Definition: reasonably similar. For purposes of paragraphs 
(b)(1) and (e) of

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this section, a taxpayer will be considered to have used a method of 
accounting for discount coupons that is ``reasonably similar'' to the 
method of accounting provided in Sec. 1.451-4 if the taxpayer followed 
the method of accounting described in Sec. 1.451-4 as if that method 
were a valid method of accounting for discount coupon redemptions.

[T.D. 8022, 50 FR 18476, May 1, 1985]