What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? What advice could you give someone who wishes to defer the reporting of prepaid income?

A. Taxpayers are allowed to defer the recognition of prepayments for goods only, when the requirements found in Sec. 451 are met. However, taxpayers cannot control the terms of contracts to identify payments as deposits rather than prepaid income. Any money received has to be classified as a prepayment.

B. Taxpayers are not allowed to defer the recognition of prepayments for goods and services. Taxpayers must report all prepayments received for goods and services in the year the prepayment was received.

C. Taxpayers are allowed to defer the recognition of prepayments for goods and services when the requirements found in Sec. 451 are met. Further, taxpayers can control the terms of contracts to identify payments as deposits rather than prepaid income. This, of course, assumes that such payments are properly so classified.

D. Taxpayers are always allowed to defer the recognition of prepayments for goods and services. Taxpayers can control the terms of contracts to identify payments as deposits rather than prepaid income. Payments do not have to be classified as deposits for this to happen.