Rev. Rul. 71-450

S, a corporation, owned a newspaper business. S in a prior taxable year elected to report prepaid subscription income of the newspaper business ratably under section 455 of the Internal Revenue Code of 1954. S entered into into an agreement to sell the newspaper to P (purchaser). Under the terms of that agreement, S received 5x dollars which was reported as the sales price. Under the terms of the same agreement, S paid to P (purchaser) 1x dollars, a sum equal to the amount of prepaid subscriptions existing at the time of the sale, to compensate P (purchaser) for taking over S's liability on these subscriptions. The sales price of 5x dollars did not take into account S's liability for these newspaper subscriptions. In the year of the sale S has, as required under section 1.455-4 of the Income Tax Regulations, included in its gross income the prepaid subscription income not previously included in its gross income pursuant to its election under section 455 of the Code.

Held, under the circumstances described above, the amount paid by S to P to compensate P for its assumption of the liability for the unearned subscriptions is includible in P's gross income under section 61(a) of the Code.

Revenue Ruling 68-112, C.B. 1968-1, 62, dealing with the tax consequences to the seller, is amplified.