-CITE-
26 USC Subchapter E - Accounting Periods and Methods of
Accounting 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
-HEAD-
SUBCHAPTER E - ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
-MISC1-
Part
I. Accounting periods.
II. Methods of accounting.
III. Adjustments.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in section 414 of this title.
-End-
-CITE-
26 USC PART I - ACCOUNTING PERIODS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
PART I - ACCOUNTING PERIODS
-MISC1-
Sec.
441. Period for computation of taxable income.
442. Change of annual accounting period.
443. Returns for a period of less than 12 months.
444. Election of taxable year other than required taxable
year.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10206(a)(2), Dec. 22, 1987,
101 Stat. 1330-398, added item 444.
-End-
-CITE-
26 USC Sec. 441 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 441. Period for computation of taxable income
-STATUTE-
(a) Computation of taxable income
Taxable income shall be computed on the basis of the taxpayer's
taxable year.
(b) Taxable year
For purposes of this subtitle, the term "taxable year" means -
(1) the taxpayer's annual accounting period, if it is a
calendar year or a fiscal year;
(2) the calendar year, if subsection (g) applies;
(3) the period for which the return is made, if a return is
made for a period of less than 12 months; or
(4) in the case of a FSC or DISC filing a return for a period
of at least 12 months, the period determined under subsection
(h).
(c) Annual accounting period
For purposes of this subtitle, the term "annual accounting
period" means the annual period on the basis of which the taxpayer
regularly computes his income in keeping his books.
(d) Calendar year
For purposes of this subtitle, the term "calendar year" means a
period of 12 months ending on December 31.
(e) Fiscal year
For purposes of this subtitle, the term "fiscal year" means a
period of 12 months ending on the last day of any month other than
December. In the case of any taxpayer who has made the election
provided by subsection (f) the term means the annual period
(varying from 52 to 53 weeks) so elected.
(f) Election of year consisting of 52-53 weeks
(1) General rule
A taxpayer who, in keeping his books, regularly computes his
income on the basis of an annual period which varies from 52 to
53 weeks and ends always on the same day of the week and ends
always -
(A) on whatever date such same day of the week last occurs in
a calendar month, or
(B) on whatever date such same day of the week falls which is
nearest to the last day of a calendar month,
may (in accordance with the regulations prescribed under
paragraph (3)) elect to compute his taxable income for purposes
of this subtitle on the basis of such annual period. This
paragraph shall apply to taxable years ending after the date of
the enactment of this title.
(2) Special rules for 52-53-week year
(A) Effective dates
In any case in which the effective date or the applicability
of any provision of this title is expressed in terms of taxable
years beginning, including, or ending with reference to a
specified date which is the first or last day of a month, a
taxable year described in paragraph (1) shall (except for
purposes of the computation under section 15) be treated -
(i) as beginning with the first day of the calendar month
beginning nearest to the first day of such taxable year, or
(ii) as ending with the last day of the calendar month
ending nearest to the last day of such taxable year,
as the case may be.
(B) Change in accounting period
In the case of a change from or to a taxable year described
in paragraph (1) -
(i) if such change results in a short period (within the
meaning of section 443) of 359 days or more, or of less than
7 days, section 443(b) (relating to alternative tax
computation) shall not apply;
(ii) if such change results in a short period of less than
7 days, such short period shall, for purposes of this
subtitle, be added to and deemed a part of the following
taxable year; and
(iii) if such change results in a short period to which
subsection (b) of section 443 applies, the taxable income for
such short period shall be placed on an annual basis for
purposes of such subsection by multiplying the gross income
for such short period (minus the deductions allowed by this
chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions as described in
section 443(c)) by 365, by dividing the result by the number
of days in the short period, and the tax shall be the same
part of the tax computed on the annual basis as the number of
days in the short period is of 365 days.
(3) Special rule for partnerships, S corporations, and personal
service corporations
The Secretary may by regulation provide terms and conditions
for the application of this subsection to a partnership, S
corporation, or personal service corporation (within the meaning
of section 441(i)(2)).
(4) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this subsection.
(g) No books kept; no accounting period
Except as provided in section 443 (relating to returns for
periods of less than 12 months), the taxpayer's taxable year shall
be the calendar year if -
(1) the taxpayer keeps no books;
(2) the taxpayer does not have an annual accounting period; or
(3) the taxpayer has an annual accounting period, but such
period does not qualify as a fiscal year.
(h) Taxable year of FSC's and DISC's
(1) In general
For purposes of this subtitle, the taxable year of any FSC or
DISC shall be the taxable year of that shareholder (or group of
shareholders with the same 12-month taxable year) who has the
highest percentage of voting power.
(2) Special rule where more than one shareholder (or group) has
highest percentage
If 2 or more shareholders (or groups) have the highest
percentage of voting power under paragraph (1), the taxable year
of the FSC or DISC shall be the same 12-month period as that of
any such shareholder (or group).
(3) Subsequent changes of ownership
The Secretary shall prescribe regulations under which
paragraphs (1) and (2) shall apply to a change of ownership of a
corporation after the taxable year of the corporation has been
determined under paragraph (1) or (2) only if such change is a
substantial change of ownership.
(4) Voting power determined
For purposes of this subsection, voting power shall be
determined on the basis of total combined voting power of all
classes of stock of the corporation entitled to vote.
(i) Taxable year of personal service corporations
(1) In general
For purposes of this subtitle, the taxable year of any personal
service corporation shall be the calendar year unless the
corporation establishes, to the satisfaction of the Secretary, a
business purpose for having a different period for its taxable
year. For purposes of this paragraph, any deferral of income to
shareholders shall not be treated as a business purpose.
(2) Personal service corporation
For purposes of this subsection, the term "personal service
corporation" has the meaning given such term by section
269A(b)(1), except that section 269A(b)(2) shall be applied -
(A) by substituting "any" for "more than 10 percent", and
(B) by substituting "any" for "50 percent or more in value"
in section 318(a)(2)(C).
A corporation shall not be treated as a personal service
corporation unless more than 10 percent of the stock (by value)
in such corporation is held by employee-owners (within the
meaning of section 269A(b)(2), as modified by the preceding
sentence). If a corporation is a member of an affiliated group
filing a consolidated return, all members of such group shall be
taken into account in determining whether such corporation is a
personal service corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 148; Pub. L. 88-272, title II,
Sec. 235(c)(3), Feb. 26, 1964, 78 Stat. 127; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
95-30, title I, Sec. 102(b)(5), May 23, 1977, 91 Stat. 137; Pub. L.
98-369, div. A, title IV, Sec. 474(b)(2), title VIII, Sec. 803,
July 18, 1984, 98 Stat. 830, 1000; Pub. L. 99-514, title I, Sec.
104(b)(6), title VIII, Sec. 806(c)(1), (d), Oct. 22, 1986, 100
Stat. 2105, 2364; Pub. L. 100-647, title I, Sec. 1008(e)(4), Nov.
10, 1988, 102 Stat. 3440.)
-MISC1-
AMENDMENTS
1988 - Subsec. (i)(2). Pub. L. 100-647 inserted at end "A
corporation shall not be treated as a personal service corporation
unless more than 10 percent of the stock (by value) in such
corporation is held by employee-owners (within the meaning of
section 269A(b)(2), as modified by the preceding sentence). If a
corporation is a member of an affiliated group filing a
consolidated return, all members of such group shall be taken into
account in determining whether such corporation is a personal
service corporation."
1986 - Subsec. (f)(2)(B)(iii). Pub. L. 99-514, Sec. 104(b)(6),
struck out "and by adding the zero bracket amount," after "in the
short period,".
Subsec. (f)(3), (4). Pub. L. 99-514, Sec. 806(d), added par. (3)
and redesignated former par. (3) as (4).
Subsec. (i). Pub. L. 99-514, Sec. 806(c)(1), added subsec. (i).
1984 - Subsec. (b)(4). Pub. L. 98-369, Sec. 803(a), added par.
(4).
Subsec. (f)(2)(A). Pub. L. 98-369, Sec. 474(b)(2), substituted
"section 15" for "section 21" in provisions preceding cl. (i).
Subsec. (h). Pub. L. 98-369, Sec. 803(b), added subsec. (h).
1977 - Subsec. (f)(2)(B)(iii). Pub. L. 95-30 substituted
"multiplying the gross income for such short period (minus the
deductions allowed by this chapter for the short period, but only
the adjusted amount of the deductions for personal exemptions as
described in section 443(c)) by 365, by dividing the result by the
number of days in the short period, and by adding the zero bracket
amount" for "multiplying such income by 365 and dividing the result
by the number of days in the short period".
1976 - Subsec. (f)(3). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1964 - Subsec. (f)(2)(A). Pub. L. 88-272 inserted ", including,"
before "or ending with reference to".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 806(c)(1), (d) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, with special
provisions applicable to taxpayers who are required to change their
accounting periods, see section 806(e) of Pub. L. 99-514, set out
as a note under section 1378 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 474(b)(2) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
Amendment by section 803 of Pub. L. 98-369 applicable to taxable
years beginning after Dec. 31, 1984, see section 805(a)(4) of Pub.
L. 98-369, as amended, set out as a note under section 245 of this
title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years ending
after Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out
as a note under section 1551 of this title.
CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
Nothing in section 806 of Pub. L. 99-514 or in any legislative
history relating thereto to be construed as requiring the Secretary
of the Treasury or his delegate to permit an automatic change of a
taxable year, see section 1008(e)(9) of Pub. L. 100-647, set out as
a note under section 1378 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 267, 280H, 442, 444, 706
of this title.
-End-
-CITE-
26 USC Sec. 442 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 442. Change of annual accounting period
-STATUTE-
If a taxpayer changes his annual accounting period, the new
accounting period shall become the taxpayer's taxable year only if
the change is approved by the Secretary. For purposes of this
subtitle, if a taxpayer to whom section 441(g) applies adopts an
annual accounting period (as defined in section 441(c)) other than
a calendar year, the taxpayer shall be treated as having changed
his annual accounting period.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary".
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 859, 1398, 6110 of this
title.
-End-
-CITE-
26 USC Sec. 443 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 443. Returns for a period of less than 12 months
-STATUTE-
(a) Returns for short period
A return for a period of less than 12 months (referred to in this
section as "short period") shall be made under any of the following
circumstances:
(1) Change of annual accounting period
When the taxpayer, with the approval of the Secretary, changes
his annual accounting period. In such a case, the return shall be
made for the short period beginning on the day after the close of
the former taxable year and ending at the close of the day before
the day designated as the first day of the new taxable year.
(2) Taxpayer not in existence for entire taxable year
When the taxpayer is in existence during only part of what
would otherwise be his taxable year.
(b) Computation of tax on change of annual accounting period
(1) General rule
If a return is made under paragraph (1) of subsection (a), the
taxable income for the short period shall be placed on an annual
basis by multiplying the modified taxable income for such short
period by 12, dividing the result by the number of months in the
short period. The tax shall be the same part of the tax computed
on the annual basis as the number of months in the short period
is of 12 months.
(2) Exception
(A) Computation based on 12-month period
If the taxpayer applies for the benefits of this paragraph
and establishes the amount of this taxable income for the
12-month period described in subparagraph (B), computed as if
that period were a taxable year and under the law applicable to
that year, then the tax for the short period, computed under
paragraph (1), shall be reduced to the greater of the
following:
(i) an amount which bears the same ratio to the tax
computed on the taxable income for the 12-month period as the
modified taxable income computed on the basis of the short
period bears to the modified taxable income for the 12-month
period; or
(ii) the tax computed on the modified taxable income for
the short period.
The taxpayer (other than a taxpayer to whom subparagraph
(B)(ii) applies) shall compute the tax and file his return
without the application of this paragraph.
(B) 12-month period
The 12-month period referred to in subparagraph (A) shall be
-
(i) the period of 12 months beginning on the first day of
the short period, or
(ii) the period of 12 months ending at the close of the
last day of the short period, if at the end of the 12 months
referred to in clause (i) the taxpayer is not in existence or
(if a corporation) has theretofore disposed of substantially
all of its assets.
(C) Application for benefits
Application for the benefits of this paragraph shall be made
in such manner and at such time as the regulations prescribed
under subparagraph (D) may require; except that the time so
prescribed shall not be later than the time (including
extensions) for filing the return for the first taxable year
which ends on or after the day which is 12 months after the
first day of the short period. Such application, in case the
return was filed without regard to this paragraph, shall be
considered a claim for credit or refund with respect to the
amount by which the tax is reduced under this paragraph.
(D) Regulations
The Secretary shall prescribe such regulations as he deems
necessary for the application of this paragraph.
(3) Modified taxable income defined
For purposes of this subsection the term "modified taxable
income" means, with respect to any period, the gross income for
such period minus the deductions allowed by this chapter for such
period (but, in the case of a short period, only the adjusted
amount of the deductions for personal exemptions).
(c) Adjustment in deduction for personal exemption
In the case of a taxpayer other than a corporation, if a return
is made for a short period by reason of subsection (a)(1) and if
the tax is not computed under subsection (b)(2), then the
exemptions allowed as a deduction under section 151 (and any
deduction in lieu thereof) shall be reduced to amounts which bear
the same ratio to the full exemptions as the number of months in
the short period bears to 12.
(d) Adjustment in computing minimum tax and tax preferences
If a return is made for a short period by reason of subsection
(a) -
(1) the alternative minimum taxable income for the short period
shall be placed on an annual basis by multiplying such amount by
12 and dividing the result by the number of months in the short
period, and
(2) the amount computed under paragraph (1) of section 55(a)
shall bear the same relation to the tax computed on the annual
basis as the number of months in the short period bears to 12.
(e) Cross references
For inapplicability of subsection (b) in computing -
(1) Accumulated earnings tax, see section 536.
(2) Personal holding company tax, see section 546.
(3) Undistributed foreign personal holding company income,
see section 557.
(4) The taxable income of a regulated investment company, see
section 852(b)(2)(E).
(5) The taxable income of a real estate investment trust, see
section 857(b)(2)(C).
For returns for a period of less than 12 months in the case of
a debtor's election to terminate a taxable year, see section
1398(d)(2)(E).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 149; Pub. L. 86-779, Sec. 10(i),
Sept. 14, 1960, 74 Stat. 1009; Pub. L. 91-172, title III, Sec.
301(b)(6), Dec. 30, 1969, 83 Stat. 585; Pub. L. 94-455, title III,
Sec. 301(e), title XII, Sec. 1204(c)(2), title XVI, Sec.
1607(b)(1)(C), title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1553, 1697, 1757, 1834; Pub. L. 95-30, title I, Sec.
102(b)(6), May 23, 1977, 91 Stat. 137; Pub. L. 95-600, title IV,
Sec. 421(e)(2), title VII, Sec. 703(o)(1)-(3), Nov. 6, 1978, 92
Stat. 2876, 2943; Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iii),
Apr. 1, 1980, 94 Stat. 217; Pub. L. 96-589, Sec. 3(d), Dec. 24,
1980, 94 Stat. 3401; Pub. L. 97-448, title III, Sec. 304(a), Jan.
12, 1983, 96 Stat. 2398; Pub. L. 99-514, title I, Sec. 104(b)(7),
title VII, Sec. 701(e)(3), Oct. 22, 1986, 100 Stat. 2105, 2342.)
-MISC1-
AMENDMENTS
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 104(b)(7)(A), struck
out ", and adding the zero bracket amount" after "by the number of
months in the short period".
Subsec. (b)(2)(A)(ii). Pub. L. 99-514, Sec. 104(b)(7)(B), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the tax computed on the sum of the modified taxable income for the
short period plus the zero bracket amount."
Subsec. (d). Pub. L. 99-514, Sec. 701(e)(3), substituted "and tax
preferences" for "for tax preferences" in heading and amended text
generally. Prior to amendment, subsec. (d) read as follows: "If a
return is made for a short period by reason of subsection (a), then
-
"(1) in the case of a taxpayer other than a corporation, the
alternative minimum taxable income for the short period shall be
placed on an annual basis by multiplying that amount by 12 and
dividing the result by the number of months in the short period,
and the amount computed under paragraph (1) of section 55(a)
shall be the same part of the tax computed on the annual basis as
the number of months in the short period is of 12 months; and
"(2) the $10,000 amount specified in section 56 (relating to
minimum tax for tax preferences), modified as provided by section
58, shall be reduced to the amount which bears the same ratio to
such specified amount as the number of days in the short period
bears to 365."
1983 - Subsec. (e). Pub. L. 97-448 substituted "section
1398(d)(2)(E)" for "section 1398(d)(3)(E)".
1980 - Subsec. (d)(2). Pub. L. 96-222 struck out "in the case of
a corporation," before "the $10,000 amount".
Subsec. (e). Pub. L. 96-589 inserted cross reference to section
1398(d)(3)(E) for returns for a period of less than 12 months in
the case of a debtor's election to terminate a taxable year.
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 703(o)(2),
substituted "modified taxable income for such short period" for
"gross income for such short period (minus the deductions allowed
by this chapter for the short period, but only the adjusted amount
of the deductions for personal exemptions)".
Subsec. (b)(2). Pub. L. 95-600, Sec. 703(o)(1), substituted in
cl. (i) "modified taxable income" for "taxable income" in two
places and in cl. (ii) "the sum of the modified taxable income" for
"the taxable income" and "plus the zero bracket amount" for
"without placing the taxable income on an annual basis".
Subsec. (b)(3). Pub. L. 95-600, Sec. 703(o)(3), added par. (3).
Subsec. (d). Pub. L. 95-600, Sec. 421(e)(2), substituted
"Adjustment in computing minimum tax for tax preferences" for
"Adjustment in exclusion for computing minimum tax for tax
preferences" in heading, redesignated existing provisions as par.
(2) and as so redesignated applied par. (2) to corporations, and
added par. (1).
1977 - Subsec. (b)(1). Pub. L. 95-30 substituted "multiplying the
gross income for such short period (minus the deductions allowed by
this chapter for the short period, but only the adjusted amount of
the deductions for personal exemptions) by 12, dividing the result
by the number of months in the short period, and adding the zero
bracket amount" for "multiplying such income by 12, and dividing
the result by the number of months in the short period".
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (a)(3). Pub. L. 94-455, Sec. 1204(c)(2), struck out par.
(3) which made termination of taxpayer's taxable year under section
6851 as one of the circumstances under which a tax return for a
period of less than 12 months shall be made.
Subsec. (b)(2)(D). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d). Pub. L. 94-455, Sec. 301(e), substituted "$10,000"
for "$30,000".
Subsec. (e)(5). Pub. L. 94-455, Sec. 1607(b)(1)(C), substituted
"section 857(b)(2)(C)" for "section 857(b)(2)(D)".
1969 - Subsecs. (d), (e). Pub. L. 91-172 added subsec. (d) and
redesignated former subsec. (d) as (e).
1960 - Subsec. (d)(5). Pub. L. 86-779 added par. (5).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 701(e)(3) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(b)(1) of Pub. L. 97-448 provided that: "The amendment
made by subsection (a) of section 304 [amending this section] shall
take effect as if included in the amendments made by section 3 of
the Bankruptcy Tax Act of 1980 [section 3 of Pub. L. 96-589, which
amended this section and sections 6012 and 6103 of this title]."
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases
commencing more than 90 days after Dec. 24, 1980, see section 7(b)
of Pub. L. 96-589, set out as a note under section 108 of this
title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 703(o)(4) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section] shall
apply to taxable years beginning after December 31, 1976."
Amendment by section 421(e)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 421(g) of
Pub. L. 95-600, set out as a note under section 5 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 301(g)(1) of Pub. L. 94-455 provided that the amendment
made by section 301(e) of Pub. L. 94-455 is effective for items of
tax preferences for taxable years beginning after Dec. 31, 1975,
with certain exceptions.
Amendment by section 1204(c)(2) of Pub. L. 94-455 effective with
respect to action taken under section 6851, 6861, or 6862 of this
title where the notice and demand takes place after Feb. 28, 1977,
see section 1204(d) of Pub. L. 94-455, as amended, set out as a
note under section 6851 of this title.
For effective date of amendment by section 1607(b)(1)(C) of Pub.
L. 94-455, see section 1608(c) of Pub. L. 94-455, set out as a note
under section 857 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years ending
after Dec. 31, 1969, see section 301(c) of Pub. L. 91-172, set out
as a note under section 5 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(3) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L.
100-647, set out as a note under section 861 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 3, 63, 441, 536, 546,
557, 811, 852, 857, 1362, 1398, 6013 of this title.
-End-
-CITE-
26 USC Sec. 444 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART I - ACCOUNTING PERIODS
-HEAD-
Sec. 444. Election of taxable year other than required taxable year
-STATUTE-
(a) General rule
Except as otherwise provided in this section, a partnership, S
corporation, or personal service corporation may elect to have a
taxable year other than the required taxable year.
(b) Limitations on taxable years which may be elected
(1) In general
Except as provided in paragraphs (2) and (3), an election may
be made under subsection (a) only if the deferral period of the
taxable year elected is not longer than 3 months.
(2) Changes in taxable year
Except as provided in paragraph (3), in the case of an entity
changing a taxable year, an election may be made under subsection
(a) only if the deferral period of the taxable year elected is
not longer than the shorter of -
(A) 3 months, or
(B) the deferral period of the taxable year which is being
changed.
(3) Special rule for entities retaining 1986 taxable years
In the case of an entity's 1st taxable year beginning after
December 31, 1986, an entity may elect a taxable year under
subsection (a) which is the same as the entity's last taxable
year beginning in 1986.
(4) Deferral period
For purposes of this subsection, except as provided in
regulations, the term "deferral period" means, with respect to
any taxable year of the entity, the months between -
(A) the beginning of such year, and
(B) the close of the 1st required taxable year ending within
such year.
(c) Effect of election
If an entity makes an election under subsection (a), then -
(1) in the case of a partnership or S corporation, such entity
shall make the payments required by section 7519, and
(2) in the case of a personal service corporation, such
corporation shall be subject to the deduction limitations of
section 280H.
(d) Elections
(1) Person making election
An election under subsection (a) shall be made by the
partnership, S corporation, or personal service corporation.
(2) Period of election
(A) In general
Any election under subsection (a) shall remain in effect
until the partnership, S corporation, or personal service
corporation changes its taxable year or otherwise terminates
such election. Any change to a required taxable year may be
made without the consent of the Secretary.
(B) No further election
If an election is terminated under subparagraph (A) or
paragraph (3)(A), the partnership, S corporation, or personal
service corporation may not make another election under
subsection (a).
(3) Tiered structures, etc.
(A) In general
Except as otherwise provided in this paragraph -
(i) no election may be under subsection (a) with respect to
any entity which is part of a tiered structure, and
(ii) an election under subsection (a) with respect to any
entity shall be terminated if such entity becomes part of a
tiered structure.
(B) Exceptions for structures consisting of certain entities
with same taxable year
Subparagraph (A) shall not apply to any tiered structure
which consists only of partnerships or S corporations (or both)
all of which have the same taxable year.
(e) Required taxable year
For purposes of this section, the term "required taxable year"
means the taxable year determined under section 706(b), 1378, or
441(i) without taking into account any taxable year which is
allowable by reason of business purposes. Solely for purposes of
the preceding sentence, sections 706(b), 1378, and 441(i) shall be
treated as in effect for taxable years beginning before January 1,
1987.
(f) Personal service corporation
For purposes of this section, the term "personal service
corporation" has the meaning given to such term by section
441(i)(2).
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the provisions of this section, including
regulations to prevent the avoidance of subsection (b)(2)(B) or
(d)(2)(B) through the change in form of an entity.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10206(a)(1), Dec. 22, 1987,
101 Stat. 1330-397; amended Pub. L. 100-647, title II, Sec.
2004(e)(1), (2)(A), (12), (13), Nov. 10, 1988, 102 Stat. 3600,
3602.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(e)(1)(A),
substituted "as otherwise provided in this section" for "as
provided in subsections (b) and (c)".
Subsec. (b)(4). Pub. L. 100-647, Sec. 2004(e)(13), inserted
"except as provided in regulations," before "the term".
Subsec. (d)(2)(A). Pub. L. 100-647, Sec. 2004(e)(12), inserted
"or otherwise terminates such election" after "its taxable year".
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 2004(e)(1)(C), inserted
"or paragraph (3)(A)" after "under subparagraph (A)".
Subsec. (d)(3). Pub. L. 100-647, Sec. 2004(e)(1)(B), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "No
election may be made under subsection (a) with respect to an entity
which is part of a tiered structure other than a tiered structure
comprised of 1 or more partnerships or S corporations all of which
have the same taxable year."
Subsecs. (f), (g). Pub. L. 100-647, Sec. 2004(e)(2)(A), added
subsec. (f) and redesignated former subsec. (f) as (g).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE
Section 10206(d) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(e)(11), Nov. 10, 1988, 102 Stat. 3602,
provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [enacting this section and sections
280H and 7519 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Required payments. - The amendments made by subsection (b)
[enacting section 7519 of this title] shall apply to applicable
election years beginning after December 31, 1986.
"(3) Elections. - Any election under section 444 of the Internal
Revenue Code of 1986 (as added by subsection (a)) for an entity's
1st taxable year beginning after December 31, 1986, shall not be
required to be made before the 90th day after the date of the
enactment of this Act [Dec. 22, 1987].
"(4) Special rule for existing entities electing s corporation
status. - If a C corporation (within the meaning of section
1361(a)(2) of the Internal Revenue Code of 1986) with a taxable
year other than the calendar year -
"(A) made an election after September 18, 1986, and before
January 1, 1988, under section 1362 of such Code to be treated as
an S corporation, and
"(B) elected to have the calendar year as the taxable year of
the S corporation,
then section 444(b)(2)(B) of such Code shall be applied by taking
into account the deferral period of the last taxable year of the C
corporation rather than the deferral period of the taxable year
being changed. The preceding sentence shall apply only in the case
of an election under section 444 of such Code made for a taxable
year beginning before 1989."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 280H, 7519 of this title.
-End-
-CITE-
26 USC PART II - METHODS OF ACCOUNTING 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
-HEAD-
PART II - METHODS OF ACCOUNTING
-MISC1-
Subpart
A. Methods of accounting in general.
B. Taxable year for which items of gross income included.
C. Taxable year for which deductions taken.
D. Inventories.
-End-
-CITE-
26 USC Subpart A - Methods of Accounting in General 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
SUBPART A - METHODS OF ACCOUNTING IN GENERAL
-MISC1-
Sec.
446. General rule for methods of accounting.
447. Method of accounting for corporations engaged in
farming.
448. Limitation on use of cash method of accounting.
AMENDMENTS
1986 - Pub. L. 99-514, title VIII, Sec. 801(c), Oct. 22, 1986,
100 Stat. 2348, added item 448.
1976 - Pub. L. 94-455, title II, Sec. 207(c)(1)(B), Oct. 4, 1976,
90 Stat. 1541, added item 447.
-End-
-CITE-
26 USC Sec. 446 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 446. General rule for methods of accounting
-STATUTE-
(a) General rule
Taxable income shall be computed under the method of accounting
on the basis of which the taxpayer regularly computes his income in
keeping his books.
(b) Exceptions
If no method of accounting has been regularly used by the
taxpayer, or if the method used does not clearly reflect income,
the computation of taxable income shall be made under such method
as, in the opinion of the Secretary, does clearly reflect income.
(c) Permissible methods
Subject to the provisions of subsections (a) and (b), a taxpayer
may compute taxable income under any of the following methods of
accounting -
(1) the cash receipts and disbursements method;
(2) an accrual method;
(3) any other method permitted by this chapter; or
(4) any combination of the foregoing methods permitted under
regulations prescribed by the Secretary.
(d) Taxpayer engaged in more than one business
A taxpayer engaged in more than one trade or business may, in
computing taxable income, use a different method of accounting for
each trade or business.
(e) Requirement respecting change of accounting method
Except as otherwise expressly provided in this chapter, a
taxpayer who changes the method of accounting on the basis of which
he regularly computes his income in keeping his books shall, before
computing his taxable income under the new method, secure the
consent of the Secretary.
(f) Failure to request change of method of accounting
If the taxpayer does not file with the Secretary a request to
change the method of accounting, the absence of the consent of the
Secretary to a change in the method of accounting shall not be
taken into account -
(1) to prevent the imposition of any penalty, or the addition
of any amount to tax, under this title, or
(2) to diminish the amount of such penalty or addition to tax.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 151; Pub. L. 94-455, title XIX,
Sec. 1906 (b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369,
div. A, title I, Sec. 161(a), July 18, 1984, 98 Stat. 696.)
-MISC1-
AMENDMENTS
1984 - Subsec. (f). Pub. L. 98-369 added subsec. (f).
1976 - Subsecs. (b), (c), (e). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1984 AMENDMENT
Section 161(b) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [July
18, 1984]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 404A, 6110 of this title.
-End-
-CITE-
26 USC Sec. 447 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 447. Method of accounting for corporations engaged in farming
-STATUTE-
(a) General rule
Except as otherwise provided by law, the taxable income from
farming of -
(1) a corporation engaged in the trade or business of farming,
or
(2) a partnership engaged in the trade or business of farming,
if a corporation is a partner in such partnership,
shall be computed on an accrual method of accounting. This section
shall not apply to the trade or business of operating a nursery or
sod farm or to the raising or harvesting of trees (other than fruit
and nut trees).
(b) Preproductive period expenses
For rules requiring capitalization of certain preproductive
period expenses, see section 263A.
(c) Exception for certain corporations
For purposes of subsection (a), a corporation shall be treated as
not being a corporation if it is -
(1) an S corporation, or
(2) a corporation the gross receipts of which meet the
requirements of subsection (d).
(d) Gross receipts requirements
(1) In general
A corporation meets the requirements of this subsection if, for
each prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of the same
controlled group of corporations (within the meaning of section
1563(a)) shall be treated as 1 corporation.
(2) Special rules for family corporations
(A) In general
In the case of a family corporation, paragraph (1) shall be
applied -
(i) by substituting "December 31, 1985," for "December 31,
1975,"; and
(ii) by substituting "$25,000,000" for "$1,000,000".
(B) Gross receipts test
(i) Controlled groups
Notwithstanding the last sentence of paragraph (1), in the
case of a family corporation -
(I) except as provided by the Secretary, only the
applicable percentage of gross receipts of any other member
of any controlled group of corporations of which such
corporation is a member shall be taken into account, and
(II) under regulations, gross receipts of such
corporation or of another member of such group shall not be
taken into account by such corporation more than once.
(ii) Pass-thru entities
For purposes of paragraph (1), if a family corporation
holds directly or indirectly any interest in a partnership,
estate, trust or other pass-thru entity, such corporation
shall take into account its proportionate share of the gross
receipts of such entity.
(iii) Applicable percentage
For purposes of clause (i), the term "applicable
percentage" means the percentage equal to a fraction -
(I) the numerator of which is the fair market value of
the stock of another corporation held directly or
indirectly as of the close of the taxable year by the
family corporation, and
(II) the denominator of which is the fair market value of
all stock of such corporation as of such time.
For purposes of this clause, the term "stock" does not
include stock described in section 1563(c)(1).
(C) Family corporation
For purposes of this section, the term "family corporation"
means -
(i) any corporation if at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, and at least 50 percent of all other classes of stock
of the corporation, are owned by members of the same family,
and
(ii) any corporation described in subsection (h).
(e) Members of the same family
For purposes of subsection (d) -
(1) the members of the same family are an individual, such
individual's brothers and sisters, the brothers and sisters of
such individual's parents and grandparents, the ancestors and
lineal descendants or any of the foregoing, a spouse of any of
the foregoing, and the estate of any of the foregoing,
(2) stock owned, directly or indirectly, by or for a
partnership or trust shall be treated as owned proportionately by
its partners or beneficiaries, and
(3) if 50 percent or more in value of the stock in a
corporation (hereinafter in this paragraph referred to as "first
corporation") is owned, directly or through paragraph (2), by or
for members of the same family, such members shall be considered
as owning each class of stock in a second corporation (or a
wholly owned subsidiary of such second corporation) owned,
directly or indirectly, by or for the first corporation, in that
proportion which the value of the stock in the first corporation
which such members so own bears to the value of all the stock in
the first corporation.
For purposes of paragraph (1), individuals related by the half
blood or by legal adoption shall be treated as if they were related
by the whole blood.
(f) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(1) such change shall be treated as having been made with the
consent of the Secretary,
(2) for purposes of section 481(a)(2), such change shall be
treated as a change not initiated by the taxpayer, and
(3) under regulations prescribed by the Secretary, the net
amount of adjustments required by section 481(a) to be taken into
account by the taxpayer in computing taxable income shall be
taken into account in each of the 10 taxable years (or the
remaining taxable years where there is a stated future life of
less than 10 taxable years) beginning with the year of change.
(g) Certain annual accrual accounting methods
(1) In general
Notwithstanding subsection (a) or section 263A, if -
(A) for its 10 taxable years ending with its first taxable
year beginning after December 31, 1975, a corporation or
qualified partnership used an annual accrual method of
accounting with respect to its trade or business of farming,
(B) such corporation or qualified partnership raises crops
which are harvested not less than 12 months after planting, and
(C) such corporation or qualified partnership has used such
method of accounting for all taxable years intervening between
its first taxable year beginning after December 31, 1975, and
the taxable year,
such corporation or qualified partnership may continue to employ
such method of accounting for the taxable year with respect to
its qualified farming trade or business.
(2) Annual accrual method of accounting defined
For purposes of paragraph (1), the term "annual accrual method
of accounting" means a method under which revenues, costs, and
expenses are computed on an accrual method of accounting and the
preproductive period expenses incurred during the taxable year
are charged to harvested crops or deducted in determining the
taxable income for such years.
(3) Certain nonrecognition transfers
For purposes of this subsection, if -
(A) a corporation acquired substantially all the assets of a
qualified farming trade or business from another corporation in
a transaction in which no gain or loss was recognized to the
transferor or transferee corporation, or
(B) a qualified partnership acquired substantially all the
assets of a qualified farming trade or business from one of its
partners in a transaction to which section 721 applies,
the transferee corporation or qualified partnership shall be
deemed to have computed its taxable income on an annual accrual
method of accounting during the period for which the transferor
corporation or partnership computed its taxable income from such
trade or business on an annual accrual method.
(4) Qualified partnership defined
For purposes of this subsection -
(A) Qualified partnership
The term "qualified partnership" means a partnership which is
engaged in a qualified farming trade or business and each of
the partners of which is a corporation other than -
(i) an S corporation, or
(ii) a personal holding company (within the meaning of
section 542(a)).
(B) Qualified farming trade or business
(i) In general
The term "qualified farming trade or business" means the
trade or business of farming -
(I) sugar cane,
(II) any plant with a preproductive period (as defined in
section 263A(e)(3)) of 2 years or less, and
(III) any other plant (other than any citrus or almond
tree) if an election by the corporation under this
subparagraph is in effect.
In the case of a partnership and for purposes of paragraph
(3)(A), subclauses (II) and (III) shall not apply.
(ii) Effect of election
For purposes of paragraphs (1) and (2) of section 263A(e),
any election under this subparagraph shall be treated as if
it were an election under subsection (d)(3) of section 263A.
(iii) Election
Unless the Secretary otherwise consents, an election under
this subparagraph may be made only for the corporation's 1st
taxable year which begins after December 31, 1986, and during
which the corporation engages in a farming business. Any such
election, once made, may be revoked only with the consent of
the Secretary.
(h) Exception for certain closely held corporations
(1) In general
A corporation is described in this subsection if, on October 4,
1976, and at all times thereafter -
(A) members of 2 families (within the meaning of subsection
(e)(1)) have owned (directly or through the application of
subsection (e)) at least 65 percent of the total combined
voting power of all classes of stock of such corporation
entitled to vote, and at least 65 percent of the total number
of shares of all other classes of stock of such corporation; or
(B)(i) members of 3 families (within the meaning of
subsection (e)(1)) have owned (directly or through the
application of subsection (e)) at least 50 percent of the total
combined voting power of all classes of stock of such
corporation entitled to vote, and at least 50 percent of the
total number of shares of all other classes of stock of such
corporation; and
(ii) substantially all of the stock of such corporation which
is not so owned (directly or through the application of
subsection (e)) by members of such 3 families is owned directly
-
(I) by employees of the corporation or members of their
families (within the meaning of section 267(c)(4)), or
(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) and which is
exempt from taxation under section 501(a).
(2) Stock held by employees, etc.
For purposes of this subsection, stock which -
(A) is owned directly by employes (!1) of the corporation or
members of their families (within the meaning of section
267(c)(4)) or by a trust described in paragraph (1)(B)(ii)(II),
and
(B) was acquired on or after October 4, 1976, from the
corporation or from a member of a family which, on October 4,
1976, was described in subparagraph (A) or (B)(i) of paragraph
(1).
shall be treated as owned by a member of a family which, on
October 4, 1976, was described in subparagraph (A) or (B)(i) of
paragraph (1).
(3) Corporation must be engaged in farming
This subsection shall apply only in the case of a corporation
which was, on October 4, 1976, and at all times thereafter,
engaged in the trade or business of farming.
(i) Suspense account for family corporations
(1) In general
If any family corporation is required by this section to change
its method of accounting for any taxable year (hereinafter in
this subsection referred to as the "year of the change"),
notwithstanding subsection (f), such corporation shall establish
a suspense account under this subsection in lieu of taking into
account adjustments under section 481(a) with respect to amounts
included in the suspense account.
(2) Initial opening balance
The initial opening balance of the account described in
paragraph (1) shall be the lesser of -
(A) the net adjustments which would have been required to be
taken into account under section 481 but for this subsection,
or
(B) the amount of such net adjustments determined as of the
beginning of the taxable year preceding the year of change.
If the amount referred to in subparagraph (A) exceeds the amount
referred to in subparagraph (B), notwithstanding paragraph (1),
such excess shall be included in gross income in the year of the
change.
(3) Inclusion where corporation ceases to be a family corporation
(A) In general
If the corporation ceases to be a family corporation during
any taxable year, the amount in the suspense account (after
taking into account prior reductions) shall be included in
gross income for such taxable year.
(B) Special rule for certain transfers
For purposes of subparagraph (A), any transfer in a
corporation after December 15, 1987, shall be treated as a
transfer to a person whose ownership could not qualify such
corporation as a family corporation unless it is a transfer -
(i) to a member of the family of the transferor, or
(ii) in the case of a corporation described in subsection
(h), to a member of a family which on December 15, 1987, held
stock in such corporation which qualified the corporation
under subsection (h).
(4) Subchapter C transactions
The application of this subsection with respect to a taxpayer
which is a party to any transaction with respect to which there
is nonrecognition of gain or loss to any party by reason of
subchapter C shall be determined under regulations prescribed by
the Secretary.
(5) Termination
(A) In general
No suspense account may be established under this subsection
by any corporation required by this section to change its
method of accounting for any taxable year ending after June 8,
1997.
(B) Phaseout of existing suspense accounts
(i) In general
Each suspense account under this subsection shall be
reduced (but not below zero) for each taxable year beginning
after June 8, 1997, by an amount equal to the lesser of -
(I) the applicable portion of such account, or
(II) 50 percent of the taxable income of the corporation
for the taxable year, or, if the corporation has no taxable
income for such year, the amount of any net operating loss
(as defined in section 172(c)) for such taxable year.
For purposes of the preceding sentence, the amount of taxable
income and net operating loss shall be determined without
regard to this paragraph.
(ii) Coordination with other reductions
The amount of the applicable portion for any taxable year
shall be reduced (but not below zero) by the amount of any
reduction required for such taxable year under any other
provision of this subsection.
(iv) (!2) Inclusion in income
Any reduction in a suspense account under this paragraph
shall be included in gross income for the taxable year of the
reduction.
(C) Applicable portion
For purposes of subparagraph (B), the term "applicable
portion" means, for any taxable year, the amount which would
ratably reduce the amount in the account (after taking into
account prior reductions) to zero over the period consisting of
such taxable year and the remaining taxable years in such first
20 taxable years.
(D) Amounts after 20th year
Any amount in the account as of the close of the 20th year
referred to in subparagraph (C) shall be treated as the
applicable portion for each succeeding year thereafter to the
extent not reduced under this paragraph for any prior taxable
year after such 20th year.
-SOURCE-
(Added Pub. L. 94-455, title II, Sec. 207(c)(1)(A), Oct. 4, 1976,
90 Stat. 1538; amended Pub. L. 95-600, title III, Secs. 351(a),
353(a), title VII, Secs. 701(l)(1), 703(d), Nov. 6, 1978, 92 Stat.
2846, 2847, 2906, 2939; Pub. L. 97-248, title II, Sec. 230(a),
Sept. 3, 1982, 96 Stat. 495; Pub. L. 97-354, Sec. 5(a)(28), (29),
Oct. 19, 1982, 96 Stat. 1695; Pub. L. 99-514, title VIII, Sec.
803(b)(7), Oct. 22, 1986, 100 Stat. 2356; Pub. L. 100-203, title X,
Sec. 10205(a)-(c), Dec. 22, 1987, 101 Stat. 1330-395 to 1330-397;
Pub. L. 100-647, title I, Sec. 1008(b)(5), (6), Nov. 10, 1988, 102
Stat. 3438; Pub. L. 101-508, title XI, Sec. 11702(b), Nov. 5, 1990,
104 Stat. 1388-514; Pub. L. 105-34, title X, Sec. 1081(a), Aug. 5,
1997, 111 Stat. 949.)
-MISC1-
AMENDMENTS
1997 - Subsec. (i)(3). Pub. L. 105-34 redesignated par. (5) as
(3) and struck out heading and text of former par. (3). Text read
as follows: "If -
"(A) the gross receipts of the corporation from the trade or
business of farming for the year of the change or any subsequent
taxable year, is less than
"(B) such gross receipts for the taxpayer's last taxable year
beginning before the year of the change (or for the most recent
taxable year for which a reduction in the suspense account was
made under this paragraph),
the amount in the suspense account (after taking into account prior
reductions) shall be reduced by the percentage by which the amount
described in subparagraph (A) is less than the amount described in
subparagraph (B)."
Subsec. (i)(4). Pub. L. 105-34 redesignated par. (6) as (4) and
struck out heading and text of former par. (4). Text read as
follows: "Any reduction in the suspense account under paragraph (3)
shall be included in gross income for the taxable year of the
reduction."
Subsec. (i)(5), (6). Pub. L. 105-34 added par. (5) and
redesignated former pars. (5) and (6) as (3) and (4), respectively.
1990 - Subsec. (g)(1)(A). Pub. L. 101-508, Sec. 11702(b)(2),
substituted "trade or business of farming" for "qualified farming
trade or business".
Subsec. (g)(4)(B). Pub. L. 101-508, Sec. 11702(b)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'qualified farming trade or business' means the
trade or business of farming sugar cane."
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1008(b)(5), substituted
"period expenses" for "period of expenses" in heading and in text.
Subsec. (g)(1). Pub. L. 100-647, Sec. 1008(b)(6), substituted
"qualified farming trade or business" for "trade or business of
farming" in subpar. (A) and in concluding provisions.
1987 - Subsec. (c). Pub. L. 100-203, Sec. 10205(a), added subsec.
(c), substituting "certain corporations" for "small business and
family corporations" in heading and striking out former text which
read as follows: "For purposes of subsection (a), a corporation
shall be treated as not being a corporation if it is -
"(1) an S corporation,
"(2) a corporation of which at least 50 percent of the total
combined voting power of all classes of stock entitled to vote,
and at least 50 percent of the total number of shares of all
other classes of stock of the corporation, are owned by members
of the same family, or
"(3) a corporation the gross receipts of which meet the
requirements of subsection (e)."
Subsec. (d). Pub. L. 100-203, Sec. 10205(a), added subsec. (d).
Former subsec. (d) redesignated (e).
Subsec. (e). Pub. L. 100-203, Sec. 10205(c)(1), substituted
"subsection (d)" for "subsection (c)(2)".
Pub. L. 100-203, Sec. 10205(a), redesignated former subsec. (d)
as (e) and struck out former subsec. (e), "Corporation having gross
receipts of $1,000,000 or less", which read as follows: "A
corporation meets the requirements of this subsection if, for each
prior taxable year beginning after December 31, 1975, such
corporation (and any predecessor corporation) did not have gross
receipts exceeding $1,000,000. For purposes of the preceding
sentence, all corporations which are members of a controlled group
of corporations (within the meaning of section 1563(a)) shall be
treated as one corporation."
Subsec. (h)(1). Pub. L. 100-203, Sec. 10205(c)(2)(A), substituted
"A corporation is described in this subsection" for "This section
shall not apply to any corporation".
Subsec. (h)(1)(A), (B). Pub. L. 100-203, Sec. 10205(c)(2)(B),
(C), substituted "subsection (e)" for "subsection (d)" and
"subsection (e)(1)" for "subsection (d)(1)" wherever appearing.
Subsec. (i). Pub. L. 100-203, Sec. 10205(b), added subsec. (i).
1986 - Subsec. (a). Pub. L. 99-514, Sec. 803(b)(7)(B), which
directed that subsec. (a) be amended by striking out "and with the
capitalization of preproductive period of expenses described in
subsection (b)", was executed by striking out "and with the
capitalization of preproductive period expenses described in
subsection (b)" after "accrual method of accounting", as the
probable intent of Congress.
Subsec. (b). Pub. L. 99-514, Sec. 803(b)(7)(A), in amending
subsec. (b) generally, substituted in heading "period of expenses"
for "period expenses" and in text the cross reference to section
263A for former par. (1) defining "preproductive period expenses",
par. (2) relating to exceptions, and par. (3) defining
"preproductive period".
Subsec. (g)(1). Pub. L. 99-514, Sec. 803(b)(7)(C), substituted
"Notwithstanding subsection (a) or section 263A, if" for "If".
1982 - Subsec. (c)(1). Pub. L. 97-354, Sec. 5(a)(28), substituted
"an S corporation" for "an electing small business corporation
(within the meaning of section 1371(b))".
Subsec. (g)(1). Pub. L. 97-248, Sec. 230(a)(1), inserted "or
qualified partnership" after "corporation" wherever appearing.
Subsec. (g)(3). Pub. L. 97-248, Sec. 230(a)(2), designated
existing provisions from "a corporation acquired" through
"transferee corporation", as subpar. (A), inserted "qualified"
before "farming trade", and added subpar. (B).
Subsec. (g)(4). Pub. L. 97-354, Sec. 5(a)(29), substituted in
subpar. (A)(i) "an S corporation" for "an electing small business
corporation (within the meaning of section 1371(b))".
Pub. L. 97-248, Sec. 230(a)(3), added par. (4).
1978 - Subsec. (a). Pub. L. 95-600, Secs. 353(a), 703(d),
substituted in provisions following par. (2) "preproductive period
expenses" for "preproductive expenses" and "nursery or sod farm"
for "nursery".
Subsec. (f)(3). Pub. L. 95-600, Sec. 701(l)(1), struck out
"(except as otherwise provided in such regulations)" before "be
taken" and inserted "(or the remaining taxable years where there is
a stated future life of less than 10 taxable years)" after "10
taxable years".
Subsec. (g)(2). Pub. L. 95-600, Sec. 703(d), substituted
"preproductive period expenses" for "preproductive expenses".
Subsec. (h). Pub. L. 95-600, Sec. 351(a), added subsec. (h).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1081(b) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years ending after June 8, 1997."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10205(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by Pub. L. 99-514 is applicable to such interest costs only to the
extent such interest costs are attributable to costs which were
required to be capitalized under section 263 of the Internal
Revenue Code of 1954 and which would have been taken into account
in applying section 189 of the Internal Revenue Code of 1954 (as in
effect before its repeal by section 803 of Pub. L. 99-514) or, if
applicable, section 266 of such Code, see section 7831(d)(2) of
Pub. L. 101-239, set out as an Effective Date note under section
263A of this title.
Amendment by Pub. L. 99-514 applicable to costs incurred after
Dec. 31, 1986, in taxable years ending after such date, except as
otherwise provided, see section 803(d) of Pub. L. 99-514, set out
as an Effective Date note under section 263A of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
Section 230(b) of Pub. L. 97-248 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1981."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 351(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1977."
Section 353(b) of Pub. L. 95-600 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1976."
Section 701(l)(4) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by paragraphs (1) [amending this section] and (3)
[amending section 464 of this title] shall take effect as if
included in section 447 or 464 (as the case may be) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] at the time of the
enactment of such sections [Oct. 4, 1976]."
Amendment by section 703(d) of Pub. L. 95-600 effective on Oct.
4, 1976, see section 703(r) of Pub. L. 95-600, set out as a note
under section 46 of this title.
EFFECTIVE DATE
Section 207(c)(2) of Pub. L. 94-455, as amended by Pub. L. 95-30,
title IV, Sec. 404, May 23, 1977, 91 Stat. 155; Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as provided in subparagraph (B), the
amendments made by paragraph (1) [enacting this section] shall
apply to taxable years beginning after December 31, 1976.
"(B) Special rule for certain corporations. - In the case of a
corporation engaged in the trade or business of farming and with
respect to which -
"(i) members of two families (within the meaning of paragraph
(1) of section 447(d) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954], as added by paragraph (1)) owned, on
October 4, 1976 (directly or through the application of such
section 447(d)), at least 65 percent of the total combined voting
power of all classes of stock of such corporation entitled to
vote, and at least 65 percent of the total number of shares of
all other classes of stock of such corporation; or
"(ii) members of three families (within the meaning of
paragraph (1) of such section 447(d)) owned, on October 4, 1976
(directly or through the application of such section 447(d)), at
least 50 percent of the total combined voting power of all
classes of stock of such corporation entitled to vote, and at
least 50 percent of the total number of shares of all other
classes of stock of such corporation; and substantially all of
the stock of such corporation which was not so owned (directly or
through the application of such section 447(d)), by members of
such three families was owned, on October 4, 1976, directly -
"(I) by employees of the corporation or members of the
families (within the meaning of section 267(c)(4) of such Code)
of such employees, or
"(II) by a trust for the benefit of the employees of such
corporation which is described in section 401(a) of such Code
and which is exempt from taxation under section 501(a) of such
Code,
the amendments made by paragraph (1) shall apply to taxable years
beginning after December 31, 1977."
ACCOUNTING FOR GROWING CROPS
Section 352 of Pub. L. 95-600 provided that:
"(a) Application of Section. - This section shall apply to a
taxpayer who -
"(1) is a farmer, nurseryman, or florist,
"(2) is on an accrual method of accounting, and
"(3) is not required by section 447 of the Internal Revenue
Code of 1954 to capitalize preproductive period expenses.
"(b) Taxpayer May Not Be Required To Inventory Growing Crops. - A
taxpayer to whom this section applies may not be required to
inventory growing crops for any taxable year beginning after
December 31, 1977.
"(c) Taxpayer May Elect To Change To Cash Method. - A taxpayer to
whom this section applies may, for any taxable year beginning after
December 31, 1977 and before January 1, 1981, change to the cash
receipts and disbursements method of accounting with respect to any
trade or business in which the principal activity is growing crops.
"(d) Section 481 Of Code To Apply. - Any change in the way in
which a taxpayer accounts for the costs of growing crops resulting
from the application of subsection (b) or (c) -
"(1) shall not require the consent of the Secretary of the
Treasury or his delegate, and
"(2) shall be treated, for purposes of section 481 of the
Internal Revenue Code of 1954 as a change in the method of
accounting initiated by the taxpayer.
"(e) Growing Crops. - For purposes of this section, the term
'Growing crops' does not include trees grown for lumber, pulp, or
other nonlife purposes."
AUTOMATIC TEN-YEAR ADJUSTMENT FOR FARMING SYNDICATES CHANGING TO
ACCRUAL ACCOUNTING
Section 701(l)(2) of Pub. L. 95-600 provided that: "If -
"(A) a farming syndicate (within the meaning of section 464(c)
of the Internal Revenue Code of 1954) was in existence on
December 31, 1975, and
"(B) such syndicate elects an accrual method of accounting
(including the capitalization of preproductive period expenses
described in section 447(b) of such Code) for a taxable year
beginning before January 1, 1979,
then such election shall be treated as having been made with the
consent of the Secretary of the Treasury or his delegate and, under
regulations prescribed by the Secretary of the Treasury or his
delegate, the net amount of the adjustments required by section
481(a) of such Code to be taken into account by the taxpayer in
computing taxable income shall be taken into account in each of the
10 taxable years (or the remaining taxable years where there is a
stated future life of less than 10 taxable years) beginning with
the year of change."
ELECTION TO CHANGE FROM STATIC VALUE METHOD TO ACCRUAL METHOD OF
ACCOUNTING
Section 207(c)(3) of Pub. L. 94-455, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - If -
"(i) a corporation has computed its taxable income on an
annual accrual method of accounting together with a static
value method of accounting for deferred costs of growing crops
for the 10 taxable years ending with its first taxable year
beginning after December 31, 1975,
"(ii) such corporation raises crops which are harvested not
less than 12 months after planting, and
"(iii) such corporation elects, within one year after the
date of the enactment of this Act [Oct. 4, 1976] and in such
manner as the Secretary of the Treasury or his delegate
prescribes, to change to the annual accrual method of
accounting (within the meaning of section 447(g)(2) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) for
taxable years beginning after December 31, 1976,
such change shall be treated as having been made with the consent
of the Secretary of the Treasury, and, under regulations
prescribed by the Secretary of the Treasury or his delegate, the
net amount of the adjustments required by section 481(a) of the
Internal Revenue Code of 1986 to be taken into account by the
taxpayer in computing taxable income shall (except as otherwise
provided in such regulations) be taken into account in each of
the 10 taxable years beginning with the year of change.
"(B) Coordination with section 447 of the code. - A corporation
which elects under subparagraph (A) to change to the annual
accrual method of accounting shall, for purposes of section
447(g) of the Internal Revenue Code of 1986, be deemed to be a
corporation which has computed its taxable income on an annual
accrual method of accounting for its 10 taxable years ending with
its first taxable year beginning after December 31, 1975.
"(C) Certain corporate reorganizations. - For purposes of this
paragraph, if a corporation acquired substantially all the assets
of a farming trade or business from another corporation in a
transaction in which no gain or loss was recognized to the
transferor or transferee corporation, the transferee corporation
shall be deemed to have computed its taxable income on an annual
accrual method of accounting together with a static value method
of accounting for deferred costs of growing crops during the
period for which the transferor corporation computed its taxable
income from such trade or business on such accrual and static
value method."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 263A, 354, 4972 of this
title.
-FOOTNOTE-
(!1) So in original.
(!2) So in original. Probably should be "(iii)".
-End-
-CITE-
26 USC Sec. 448 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart A - Methods of Accounting in General
-HEAD-
Sec. 448. Limitation on use of cash method of accounting
-STATUTE-
(a) General rule
Except as otherwise provided in this section, in the case of a -
(1) C corporation,
(2) partnership which has a C corporation as a partner, or
(3) tax shelter,
taxable income shall not be computed under the cash receipts and
disbursements method of accounting.
(b) Exceptions
(1) Farming business
Paragraphs (1) and (2) of subsection (a) shall not apply to any
farming business.
(2) Qualified personal service corporations
Paragraphs (1) and (2) of subsection (a) shall not apply to a
qualified personal service corporation, and such a corporation
shall be treated as an individual for purposes of determining
whether paragraph (2) of subsection (a) applies to any
partnership.
(3) Entities with gross receipts of not more than $5,000,000
Paragraphs (1) and (2) of subsection (a) shall not apply to any
corporation or partnership for any taxable year if, for all prior
taxable years beginning after December 31, 1985, such entity (or
any predecessor) met the $5,000,000 gross receipts test of
subsection (c).
(c) $5,000,000 gross receipts test
For purposes of this section -
(1) In general
A corporation or partnership meets the $5,000,000 gross
receipts test of this subsection for any prior taxable year if
the average annual gross receipts of such entity for the
3-taxable-year period ending with such prior taxable year does
not exceed $5,000,000.
(2) Aggregation rules
All persons treated as a single employer under subsection (a)
or (b) of section 52 or subsection (m) or (o) of section 414
shall be treated as one person for purposes of paragraph (1).
(3) Special rules
For purposes of this subsection -
(A) Not in existence for entire 3-year period
If the entity was not in existence for the entire 3-year
period referred to in paragraph (1), such paragraph shall be
applied on the basis of the period during which such entity (or
trade or business) was in existence.
(B) Short taxable years
Gross receipts for any taxable year of less than 12 months
shall be annualized by multiplying the gross receipts for the
short period by 12 and dividing the result by the number of
months in the short period.
(C) Gross receipts
Gross receipts for any taxable year shall be reduced by
returns and allowances made during such year.
(D) Treatment of predecessors
Any reference in this subsection to an entity shall include a
reference to any predecessor of such entity.
(d) Definitions and special rules
For purposes of this section -
(1) Farming business
(A) In general
The term "farming business" means the trade or business of
farming (within the meaning of section 263A(e)(4)).
(B) Timber and ornamental trees
The term "farming business" includes the raising, harvesting,
or growing of trees to which section 263A(c)(5) applies.
(2) Qualified personal service corporation
The term "qualified personal service corporation" means any
corporation -
(A) substantially all of the activities of which involve the
performance of services in the fields of health, law,
engineering, architecture, accounting, actuarial science,
performing arts, or consulting, and
(B) substantially all of the stock of which (by value) is
held directly (or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a)) by -
(i) employees performing services for such corporation in
connection with the activities involving a field referred to
in subparagraph (A),
(ii) retired employees who had performed such services for
such corporation,
(iii) the estate of any individual described in clause (i)
or (ii), or
(iv) any other person who acquired such stock by reason of
the death of an individual described in clause (i) or (ii)
(but only for the 2-year period beginning on the date of the
death of such individual).
To the extent provided in regulations which shall be prescribed
by the Secretary, indirect holdings through a trust shall be
taken into account under subparagraph (B).
(3) Tax shelter defined
The term "tax shelter" has the meaning given such term by
section 461(i)(3) (determined after application of paragraph (4)
thereof). An S corporation shall not be treated as a tax shelter
for purposes of this section merely by reason of being required
to file a notice of exemption from registration with a State
agency described in section 461(i)(3)(A), but only if there is a
requirement applicable to all corporations offering securities
for sale in the State that to be exempt from such registration
the corporation must file such a notice.
(4) Special rules for application of paragraph (2)
For purposes of paragraph (2) -
(A) community property laws shall be disregarded,
(B) stock held by a plan described in section 401(a) which is
exempt from tax under section 501(a) shall be treated as held
by an employee described in paragraph (2)(B)(i), and
(C) at the election of the common parent of an affiliated
group (within the meaning of section 1504(a)), all members of
such group may be treated as 1 taxpayer for purposes of
paragraph (2)(B) if 90 percent or more of the activities of
such group involve the performance of services in the same
field described in paragraph (2)(A).
(5) Special rule for certain services
(A) In general
In the case of any person using an accrual method of
accounting with respect to amounts to be received for the
performance of services by such person, such person shall not
be required to accrue any portion of such amounts which (on the
basis of such person's experience) will not be collected if -
(i) such services are in fields referred to in paragraph
(2)(A), or
(ii) such person meets the gross receipts test of
subsection (c) for all prior taxable years.
(B) Exception
This paragraph shall not apply to any amount if interest is
required to be paid on such amount or there is any penalty for
failure to timely pay such amount.
(C) Regulations
The Secretary shall prescribe regulations to permit taxpayers
to determine amounts referred to in subparagraph (A) using
computations or formulas which, based on experience, accurately
reflect the amount of income that will not be collected by such
person. A taxpayer may adopt, or request consent of the
Secretary to change to, a computation or formula that clearly
reflects the taxpayer's experience. A request under the
preceding sentence shall be approved if such computation or
formula clearly reflects the taxpayer's experience.
(6) Treatment of certain trusts subject to tax on unrelated
business income
For purposes of this section, a trust subject to tax under
section 511(b) shall be treated as a C corporation with respect
to its activities constituting an unrelated trade or business.
(7) Coordination with section 481
In the case of any taxpayer required by this section to change
its method of accounting for any taxable year -
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the consent of
the Secretary, and
(C) the period for taking into account the adjustments under
section 481 by reason of such change -
(i) except as provided in clause (ii), shall not exceed 4
years, and
(ii) in the case of a hospital, shall be 10 years.
(8) Use of related parties, etc.
The Secretary shall prescribe such regulations as may be
necessary to prevent the use of related parties, pass-thru
entities, or intermediaries to avoid the application of this
section.
-SOURCE-
(Added Pub. L. 99-514, title VIII, Sec. 801(a), Oct. 22, 1986, 100
Stat. 2345; amended Pub. L. 100-647, title I, Sec. 1008(a)(1), (2),
(7)-(9), title VI, Sec. 6032(a), Nov. 10, 1988, 102 Stat. 3436,
3437, 3695; Pub. L. 107-147, title IV, Sec. 403(a), Mar. 9, 2002,
116 Stat. 40.)
-MISC1-
AMENDMENTS
2002 - Subsec. (d)(5). Pub. L. 107-147 amended heading and text
of par. (5) generally. Prior to amendment, text read as follows:
"In the case of any person using an accrual method of accounting
with respect to amounts to be received for the performance of
services by such person, such person shall not be required to
accrue any portion of such amounts which (on the basis of
experience) will not be collected. This paragraph shall not apply
to any amount if interest is required to be paid on such amount or
there is any penalty for failure to timely pay such amount."
1988 - Subsec. (c)(3)(D). Pub. L. 100-647, Sec. 1008(a)(9), added
subpar. (D).
Subsec. (d)(2). Pub. L. 100-647, Sec. 6032(a), inserted at end
"To the extent provided in regulations which shall be prescribed by
the Secretary, indirect holdings through a trust shall be taken
into account under subparagraph (B)."
Subsec. (d)(2)(B). Pub. L. 100-647, Sec. 1008(a)(1)(A),
substituted "(or indirectly through 1 or more partnerships, S
corporations, or qualified personal service corporations not
described in paragraph (2) or (3) of subsection (a))" for "or
indirectly".
Subsec. (d)(3). Pub. L. 100-647, Sec. 1008(a)(7), inserted
sentence at end relating to treatment of S corporation as tax
shelter.
Subsec. (d)(4)(C). Pub. L. 100-647, Sec. 1008(a)(8), substituted
"90 percent or more of" for "substantially all of".
Pub. L. 100-647, Sec. 1008(a)(2), substituted "such group" for
"all such members".
Subsec. (d)(8). Pub. L. 100-647, Sec. 1008(a)(1)(B), added par.
(8).
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 403(b), Mar. 9, 2002, 116 Stat.
41, provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years ending after the date of
the enactment of this Act [Mar. 9, 2002].
"(2) Change in method of accounting. - In the case of any
taxpayer required by the amendments made by this section to change
its method of accounting for its first taxable year ending after
the date of the enactment of this Act -
"(A) such change shall be treated as initiated by the taxpayer,
"(B) such change shall be treated as made with the consent of
the Secretary of the Treasury, and
"(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into account over a period of
4 years (or if less, the number of taxable years that the
taxpayer used the method permitted under section 448(d)(5) of
such Code as in effect before the date of the enactment of this
Act) beginning with such first taxable year."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1008(a)(1), (2), (7)-(9) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Section 6032(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1986."
EFFECTIVE DATE
Section 801(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(a)(5), (6), Nov. 10, 1988, 102 Stat. 3437,
provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [enacting this section and amending
section 461 of this title] shall apply to taxable years beginning
after December 31, 1986.
"(2) Election to retain cash method for certain transactions. - A
taxpayer may elect not to have the amendments made by this section
apply to any loan or lease, or any transaction with a related party
(within the meaning of section 267(b) of the Internal Revenue Code
of 1954, as in effect before the enactment of this Act), entered
into on or before September 25, 1985. Any election under the
preceding sentence may be made separately with respect to each
transaction.
"(3) Certain contracts. - The amendments made by this section
shall not apply to -
"(A) contracts for the acquisition or transfer of real
property, and
"(B) contracts for services related to the acquisition or
development of real property,
but only if such contracts were entered into before September 25,
1985, and the sole element of the contract which has not been
performed as of September 25, 1985, is payment for such property or
services.
"(4) Treatment of affiliated group providing engineering
services. - Each member of an affiliated group of corporations
(within the meaning of section 1504(a) of the Internal Revenue Code
of 1986) shall be allowed to use the cash receipts and
disbursements method of accounting for any trade or business of
providing engineering services with respect to taxable years ending
after December 31, 1986, if the common parent of such group -
"(A) was incorporated in the State of Delaware in 1970,
"(B) was the successor to a corporation that was incorporated
in the State of Illinois in 1949, and
"(C) used a method of accounting for long-term contracts of
accounting [sic] for a substantial part of its income from the
performance of engineering services.
"(5) Special rule for paragraphs (2) and (3). - If any loan,
lease, contract, or evidence of any transaction to which paragraph
(2) or (3) applies is transferred after June 10, 1987, to a person
other than a related party (within the meaning of paragraph (2)),
paragraph (2) or (3) shall cease to apply on and after the date of
such transfer."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 55, 172, 263A, 474,
5081, 5731, 5801, 6721 of this title.
-End-
-CITE-
26 USC Subpart B - Taxable Year for Which Items of Gross
Income Included 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
SUBPART B - TAXABLE YEAR FOR WHICH ITEMS OF GROSS INCOME INCLUDED
-MISC1-
Sec.
451. General rule for taxable year of inclusion.
[452. Repealed.]
453. Installment method.
453A. Special rules for nondealers.
453B. Gain or loss on disposition of installment
obligations.(!1)
[453C. Repealed.]
454. Obligations issued at discount.
455. Prepaid subscription income.
456. Prepaid dues income of certain membership
organizations.
457. Deferred compensation plans of State and local
governments and tax-exempt organizations.
458. Magazines, paperbacks, and records returned after the
close of the taxable year.
460. Special rules for long-term contracts.
AMENDMENTS
1988 - Pub. L. 100-647, title V, Sec. 5076(b)(2), Nov. 10, 1988,
102 Stat. 3683, struck out "of real property" after "rules for
nondealers" in item 453A.
1987 - Pub. L. 100-203, title X, Sec. 10202(a)(2), (c)(2), Dec.
22, 1987, 101 Stat. 1330-388, 1330-392, substituted "Special rules
for nondealers of real property" for "Installment method for
dealers in personal property" in item 453A, and struck out item
453C "Certain indebtedness treated as payments on installment
obligations".
1986 - Pub. L. 99-514, title XI, Sec. 1107(b), (c), Oct. 22,
1986, 101 Stat. 2430, added item 457, applicable to taxable years
beginning after Dec. 31, 1988, with certain exceptions, and struck
out former item 457 "Deferred compensation plans with respect to
service for State and local governments".
Pub. L. 99-514, title VIII, Secs. 804(c), 811(b), Oct. 22, 1986,
100 Stat. 2361, 2368, added items 453C and 460.
1980 - Pub. L. 96-471, Sec. 2(d), Oct. 19, 1980, 94 Stat. 2254,
added items 453 to 453B and struck out former item 453 "Installment
method".
1978 - Pub. L. 95-600, title I, Sec. 131(b), title III, Sec.
372(b), Nov. 6, 1978, 92 Stat. 2782, 2862, added items 457 and 458.
1961 - Pub. L. 87-109, Sec. 1(b), July 26, 1961, 75 Stat. 224,
added item 456.
1958 - Pub. L. 85-866, title I, Sec. 28(b), Sept. 2, 1958, 72
Stat. 1626, added item 455, effective with respect to taxable years
beginning after Dec. 31, 1957. See section 28(c) of Pub. L. 85-866
set out as an Effective Date note under section 455 of this title.
1955 - Act June 15, 1955, ch. 143, Sec. 2(2), 69 Stat. 135,
struck out item 452 "Adjustment in case of position inconsistent
with prior income tax liability".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 451 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
-HEAD-
Sec. 451. General rule for taxable year of inclusion
-STATUTE-
(a) General rule
The amount of any item of gross income shall be included in the
gross income for the taxable year in which received by the
taxpayer, unless, under the method of accounting used in computing
taxable income, such amount is to be properly accounted for as of a
different period.
(b) Special rule in case of death
In the case of the death of a taxpayer whose taxable income is
computed under an accrual method of accounting, any amount accrued
only by reason of the death of the taxpayer shall not be included
in computing taxable income for the period in which falls the date
of the taxpayer's death.
(c) Special rule for employee tips
For purposes of subsection (a), tips included in a written
statement furnished an employer by an employee pursuant to section
6053(a) shall be deemed to be received at the time the written
statement including such tips is furnished to the employer.
(d) Special rule for crop insurance proceeds or disaster payments
In the case of insurance proceeds received as a result of
destruction or damage to crops, a taxpayer reporting on the cash
receipts and disbursements method of accounting may elect to
include such proceeds in income for the taxable year following the
taxable year of destruction or damage, if he establishes that,
under his practice, income from such crops would have been reported
in a following taxable year. For purposes of the preceding
sentence, payments received under the Agricultural Act of 1949, as
amended, or title II of the Disaster Assistance Act of 1988, as a
result of (1) destruction or damage to crops caused by drought,
flood, or any other natural disaster, or (2) the inability to plant
crops because of such a natural disaster shall be treated as
insurance proceeds received as a result of destruction or damage to
crops. An election under this subsection for any taxable year shall
be made at such time and in such manner as the Secretary
prescribes.
(e) Special rule for proceeds from livestock sold on account of
drought, flood, or other weather-related conditions
(1) In general
In the case of income derived from the sale or exchange of
livestock in excess of the number the taxpayer would sell if he
followed his usual business practices, a taxpayer reporting on
the cash receipts and disbursements method of accounting may
elect to include such income for the taxable year following the
taxable year in which such sale or exchange occurs if he
establishes that, under his usual business practices, the sale or
exchange would not have occurred in the taxable year in which it
occurred if it were not for drought, flood, or other
weather-related conditions, and that such conditions had resulted
in the area being designated as eligible for assistance by the
Federal Government.
(2) Limitation
Paragraph (1) shall apply only to a taxpayer whose principal
trade or business is farming (within the meaning of section
6420(c)(3)).
(f) Special rule for utility services
(1) In general
In the case of a taxpayer the taxable income of which is
computed under an accrual method of accounting, any income
attributable to the sale or furnishing of utility services to
customers shall be included in gross income not later than the
taxable year in which such services are provided to such
customers.
(2) Definition and special rule
For purposes of this subsection -
(A) Utility services
The term "utility services" includes -
(i) the providing of electrical energy, water, or sewage
disposal,
(ii) the furnishing of gas or steam through a local
distribution system,
(iii) telephone or other communication services, and
(iv) the transporting of gas or steam by pipeline.
(B) Year in which services provided
The taxable year in which services are treated as provided to
customers shall not, in any manner, be determined by reference
to -
(i) the period in which the customers' meters are read, or
(ii) the period in which the taxpayer bills (or may bill)
the customers for such service.
(g) Treatment of interest on frozen deposits in certain financial
institutions
(1) In general
In the case of interest credited during any calendar year on a
frozen deposit in a qualified financial institution, the amount
of such interest includible in the gross income of a qualified
individual shall not exceed the sum of -
(A) the net amount withdrawn by such individual from such
deposit during such calendar year, and
(B) the amount of such deposit which is withdrawable as of
the close of the taxable year (determined without regard to any
penalty for premature withdrawals of a time deposit).
(2) Interest tested each year
Any interest not included in gross income by reason of
paragraph (1) shall be treated as credited in the next calendar
year.
(3) Deferral of interest deduction
No deduction shall be allowed to any qualified financial
institution for interest not includible in gross income under
paragraph (1) until such interest is includible in gross income.
(4) Frozen deposit
For purposes of this subsection, the term "frozen deposit"
means any deposit if, as of the close of the calendar year, any
portion of such deposit may not be withdrawn because of -
(A) the bankruptcy or insolvency of the qualified financial
institution (or threat thereof), or
(B) any requirement imposed by the State in which such
institution is located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or more financial
institutions in the State.
(5) Other definitions
For purposes of this subsection, the terms "qualified
individual", "qualified financial institution", and "deposit"
have the same respective meanings as when used in section 165(l).
(h) Special rule for cash options for receipt of qualified prizes
(1) In general
For purposes of this title, in the case of an individual on the
cash receipts and disbursements method of accounting, a qualified
prize option shall be disregarded in determining the taxable year
for which any portion of the qualified prize is properly
includible in gross income of the taxpayer.
(2) Qualified prize option; qualified prize
For purposes of this subsection -
(A) In general
The term "qualified prize option" means an option which -
(i) entitles an individual to receive a single cash payment
in lieu of receiving a qualified prize (or remaining portion
thereof), and
(ii) is exercisable not later than 60 days after such
individual becomes entitled to the qualified prize.
(B) Qualified prize
The term "qualified prize" means any prize or award which -
(i) is awarded as a part of a contest, lottery, jackpot,
game, or other similar arrangement,
(ii) does not relate to any past services performed by the
recipient and does not require the recipient to perform any
substantial future service, and
(iii) is payable over a period of at least 10 years.
(3) Partnership, etc.
The Secretary shall provide for the application of this
subsection in the case of a partnership or other pass-through
entity consisting entirely of individuals described in paragraph
(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 152; Pub. L. 89-97, title III,
Sec. 313(b), July 30, 1965, 79 Stat. 382; Pub. L. 91-172, title II,
Sec. 215(a), Dec. 30, 1969, 83 Stat. 573; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), title XXI, Secs. 2102(a), (b), 2141(a),
Oct. 4, 1976, 90 Stat. 1834, 1900, 1933; Pub. L. 99-514, title
VIII, Sec. 821(a), title IX, Sec. 905(b), Oct. 22, 1986, 100 Stat.
2372, 2386; Pub. L. 100-647, title I, Sec. 1009(d)(3), title VI,
Secs. 6030(a), 6033(a), Nov. 10, 1988, 102 Stat. 3450, 3694, 3695;
Pub. L. 105-34, title IX, Sec. 913(a), Aug. 5, 1997, 111 Stat. 878;
Pub. L. 105-277, div. J, title V, Sec. 5301(a), Oct. 21, 1998, 112
Stat. 2681-918.)
-REFTEXT-
REFERENCES IN TEXT
The Agricultural Act of 1949, as amended, referred to in subsec.
(d), is act Oct. 31, 1949, ch. 792, 63 Stat. 1051, as amended,
which is classified principally to chapter 35A (Sec. 1421 et seq.)
of Title 7, Agriculture. For complete classification of this Act to
the Code, see Short Title note set out under section 1421 of Title
7 and Tables.
The Disaster Assistance Act of 1988, referred to in subsec. (d),
is Pub. L. 100-387, Aug. 11, 1988, 102 Stat. 924. Title II of the
Disaster Assistance Act of 1988 is set out as a note under section
1421 of Title 7. For complete classification of this Act to the
Code, see Tables.
-MISC1-
AMENDMENTS
1998 - Subsec. (h). Pub. L. 105-277 added subsec. (h).
1997 - Subsec. (e). Pub. L. 105-34 inserted ", flood, or other
weather-related conditions" after "drought" in heading and
substituted "drought, flood, or other weather-related conditions,
and that such conditions" for "drought conditions, and that these
drought conditions" in par. (1).
1988 - Subsec. (d). Pub. L. 100-647, Sec. 6033(a), inserted "or
title II of the Disaster Assistance Act of 1988," after "the
Agricultural Act of 1949, as amended,".
Subsec. (e)(1). Pub. L. 100-647, Sec. 6030(a), struck out "(other
than livestock described in section 1231(b)(3))" after "exchange of
livestock".
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1009(d)(3), redesignated
subsec. (f), relating to treatment of interest on frozen deposits
in certain financial institutions, as (g).
1986 - Subsec. (f). Pub. L. 99-514, Sec. 905(b), added subsec.
(f) relating to treatment of interest on frozen deposits in certain
financial institutions.
Pub. L. 99-514, Sec. 821(a), added subsec. (f) relating to
special rule for utility services.
1976 - Subsec. (d). Pub. L. 94-455, Secs. 1906(b)(13)(A),
2102(a), (b), inserted reference to disaster payments in heading,
provided that payments received under the Agricultural Act of 1949,
as amended, be treated as insurance proceeds received as a result
of destruction or damage to crops if the payments are received as
the result of destruction or damage from drought, flood, or other
natural disaster, or as the result of inability to plant crops
because of drought, flood, or other natural disaster, and struck
out "or his delegate" after "Secretary".
Subsec. (e). Pub. L. 94-455, Sec. 2141(a), added subsec. (e).
1969 - Subsec. (d). Pub. L. 91-172 added subsec. (d).
1965 - Subsec. (c). Pub. L. 89-97 added subsec. (c).
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title V, Sec. 5301(b), Oct. 21, 1998,
112 Stat. 2681-918, provided that:
"(1) In general. - The amendment made by this section [amending
this sectio |
