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    2 Replies Latest reply on May 24, 2012 2:07 PM by ArcSine

    Credit Card Liabilities

    EHC-USA Newbie

      I just took over accounting for a company.  They have been operating on a cash basis but have been using credit cards to pay for expenses.  I've heard

      that IRS allows these transactions to be expensed when they occur, sor of a modified cash basis.  I don't however know the Revenue Procedure or other authority source

      for this.  Any body out there know?  Second dilemma, the cards used have been in the names of two individuals, both equityholders but have been entered on the books as

      company liabilities and paid for with company funds.  I recently acquired replacment credit facilities in the company name to use going forward.  What issues am I going to

      run into with the old cards, other than the obvious personal expenditure ones.  Utilizing a QuickBooks Pro 2011 system.

        • Re: Credit Card Liabilities
          LUCKIEST Guide

          Welcome Ron. Hope your company has a outside accountant and a GOOD lawyer.


          Good luck and let us know what happens.  LUCKIEST

          • Re: Credit Card Liabilities
            ArcSine Scout

            Have a look at Rev Ruls 78-38 and 78-39. These deal with charitable contributions and medical expenses, respectively, put on credit cards, but the rationale given in the two rulings generalizes to other expense classes.


            Note that they explicitly limit their ruling to a credit card sponsored by a third party, such as a bank card. The logic is that (nearly) immediately after the purchase is made (e.g., at Lowe's, using a Visa card), Lowe's gets paid by Visa and hence the taxpayer can't then prevent Lowe's from getting paid. In essense, the taxpayer borrowed cash from Visa and bought the goods with cash; ergo, immediate deduction.


            It's a different result if the purchase is made with a Lowe's charge card: In this case it's as if taxpayer has borrowed from the vendor itself, and the general rule applicable thereto is that taxpayer gets the deduction when he pays the debt (i.e., pays the Lowe's statement next month).