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New IRS Final Section 451(b) and 451(c) Regulations: Rules for Income Recognition and Advance Payments

All-Events Test for Gross Income, Cost Offset, Multi-Year Contract Issues, Contracts With Multiple Performance Obligations, and More

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Tuesday, June 1, 2021

Recorded event now available

or call 1-800-926-7926

This CLE/CPE course will provide tax professionals and advisers a detailed analysis of IRS final regulations and new rules under Sections 451(b) and 451(c) for the timing of income recognition and advance payments. The panel will discuss the challenges and opportunities for taxpayers under the final regulations, the all-events test for recognizing gross income, using a deferral method of accounting for advance payments, cost offset methods, and issues stemming from multi-year contracts and contracts with multiple performance obligations.


IRS final regulations under Section 451(b) and (c) alter the standard for income recognition and codify an accounting method allowing income deferral for advance payments. The final regulations clarify certain items for taxpayers but fail to define realization, explain cost offset concerning the applicable financial statement (AFS) income inclusion rule, and other key issues.

Section 451(b) requires recognition of income no later than when included in an AFS for accrual-basis taxpayers. The final regs cover handling businesses with an AFS, cost-of-goods sold offsets, differences between taxable year-end dates and financial reporting year-end dates, and other income recognition timing rules.

Under the 2017 tax reform, Section 451(c) codifies that an accrual method taxpayer may use the deferral accounting method for advance payments. This allows a taxpayer to elect to recognize income from an advance payment in the year of receipt to the extent revenue is recognized in an AFS and recognize the remaining amount in the next taxable year.

The final regulations present new opportunities and challenges for taxpayers. Tax practitioners must consider methods to delay income recognition in light of the new rules, identify issues in contracts to allocate transaction prices, and overcome challenges for the inventory cost offset method.

Listen as our panel of experts explains key considerations under this new income recognition and advance payments rules, issues stemming from multi-year contracts and contracts with multiple performance obligations, how to defer revenue inclusion, and best practices for implementing these new standards.



  1. Overview of income recognition rules
  2. Impact of final regulations
  3. Timing and income recognition under 451(b)
  4. Advance payments under 451(c)
  5. Changes in accounting method
  6. Best practices


The panel will review these and other critical issues:

  • What are the key provisions of the final Section 451 regulations?
  • What is an applicable financial statement?
  • What businesses are impacted by 451(b)?
  • What are the challenges under 451(c)?
  • What issues arise from multi-year contracts and contracts with multiple performance obligations?
  • What is a special method of accounting?
  • Which companies qualify for the streamlined method change?
  • How do accrual-basis businesses avoid income inclusion under 451(b)?


McElroy, Ellen
Ellen McElroy

Eversheds Sutherland (US)

Ms. McElroy works on a broad variety of taxpayer issues involving both accounting methods and inventories. She has...  |  Read More

Resnick, Michael
Michael D. Resnick

Eversheds Sutherland (US)

Mr. Resnick focuses his practice on federal taxation matters, including tax accounting methods and compliance,...  |  Read More

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