ASC 606 Guidance: Revenue Recognition for Tax Filing Services with Advance Payments and Tranche-Based Work

Under ASC 606, revenue from tax filing services should be recognized as you satisfy performance obligations, which may occur over time or at a point in time, depending on the nature of the services provided.

Identifying Performance Obligations:

• Discrete Services: If your tax filing services include distinct tasks (e.g., initial consultation, document preparation, final filing), each may be considered a separate performance obligation.
• Continuous Service: If the service is a continuous effort culminating in the tax return filing, it may be viewed as a single performance obligation satisfied over time.

Revenue Recognition:

• Over Time: If the client receives benefits as you perform (e.g., ongoing tax advice), recognize revenue over time, proportionate to the work completed.
• Point in Time: If the client benefits only upon completion (e.g., filing the tax return), recognize revenue when the final obligation is fulfilled.

Advance Payments:

• Record advance payments as a contract liability (deferred revenue) upon receipt.
• Recognize revenue as you satisfy the related performance obligations.

Measuring Progress:

• Input Methods: Track resources consumed (e.g., hours worked) to measure progress.
• Output Methods: Assess tangible deliverables (e.g., completed forms) to gauge completion.

Practical Example:

1. Advance Payment: Receive an upfront payment of $1,000 for tax filing services.
2. Performance Obligations:
3. Revenue Recognition:

This approach ensures revenue aligns with the completion of each performance obligation, providing accurate financial reporting.