26 U.S.C. § 458 — Magazines, paperbacks, and records returned after the close of the taxable year

submitted 48 years ago by Pub. L. 95-600 to r/title-26-INTERNAL-REVENUE-CODE · 1,274 words · no verdicts yet

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Sellers of magazines, paperbacks, and records can choose to skip counting income from copies that get returned unsold. This applies if the seller must adjust the price when items are not resold. The seller must elect this treatment for the trade or business. Returns only count within a set time window after the sale year.

(a) Exclusion from gross income: A taxpayer using the accrual method of accounting may elect to leave out of gross income the income tied to a "qualified sale" of a magazine, paperback, or record — but only if the item is returned to the taxpayer before the merchandise return period closes. (b) Definitions and special rules: (1) "Magazine" includes any other periodical. (2) "Paperback" means a book with a flexible outer cover, where the pages attach directly to that cover. This does not include magazines. (3) "Record" means a disc, tape, or similar object that sound is recorded on. (4) Separate treatment: if a taxpayer sells more than one of these categories in the same business, this section treats each category (magazines, paperbacks, records) as if it were a separate business. (5) "Qualified sale": a sale counts as qualified if (A) at the time of sale, the taxpayer has a legal duty to adjust the price if the item isn't resold, and (B) the taxpayer actually adjusts the price because the item wasn't resold. (6) Amount excluded: the excluded amount is the SMALLER of (A) the amount the taxpayer was legally obligated to adjust, or (B) the amount the taxpayer actually agreed to adjust before the return period closed. (7) "Merchandise return period": (A) normally, 2 months and 15 days after the tax year ends for magazines; 4 months and 15 days after the tax year ends for paperbacks and records. (B) The taxpayer may pick a shorter period instead. (C) Changing this period counts as a change in accounting method. (8) Evidence instead of physical return: regulations may let the taxpayer use certification or other evidence — instead of physically returning the item — to show it wasn't and won't be resold, if that evidence is in the taxpayer's hands by the end of the return period and satisfies the Secretary. (9) A repurchase by the taxpayer counts as a price adjustment, not as a resale. (c) Qualified sales to which section applies: (1) Election of benefits: this section only applies if the taxpayer elects it, for the specific business making the sales. No IRS consent is needed to elect. The election must be made by the tax-return deadline (including extensions) for the year it applies to. (2) Scope of election: covers all qualified sales of that category (magazines, paperbacks, or records) in that business. (3) Once made, the election applies to that year and every year after, unless the Secretary consents to revoke it. (4) Except where inconsistent with this section, using this election counts as a method of accounting. (d) 5-year spread of transitional adjustments for magazines: When section 481(c) applies to a magazine election, any resulting decrease in taxable income is spread across 5 years — the election year plus the next 4. (e) Suspense account for paperbacks and records: For paperback or record elections, the taxpayer sets up a "suspense account" instead of using section 481. (1) The account is set up for the business, in the year the election starts. (2) Its opening balance equals the largest dollar amount of returned merchandise that would have counted under this section in any of the 3 years right before the election, as if this section had applied then. (3) Each year, the account is: (A) reduced by the excess (if any) of the opening balance over the amount excluded from income that year, or (B) increased (but never above the initial opening balance) by the excess (if any) of the amount excluded that year over the opening balance. (4) Gross income adjustments: (A) Any reduction under (3)(A) is excluded from gross income that year. (B) Any increase under (3)(B) is added to gross income that year. Also, if the initial opening balance is bigger than what would have counted the year before the election started, that extra amount is added to gross income in the first election year. (5) If a taxpayer is part of a Subchapter C corporate transaction where gain or loss isn't recognized, how this subsection applies is set by regulations.

the actual law source: uscode.house.gov ↗public domain

(a) Exclusion from gross income

A taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period.

(b) Definitions and special rules

For purposes of this section—

(1) Magazine

The term “magazine” includes any other periodical.

(2) Paperback

The term “paperback” means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine.

(3) Record

The term “record” means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded.

(4) Separate application with respect to magazines, paperbacks, and records

If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise.

(5) Qualified sale

A sale of a magazine, paperback, or record is a qualified sale if—

(A)

at the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and

(B)

the sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it.

(6) Amount excluded

The amount excluded under this section with respect to any qualified sale shall be the lesser of—

(A)

the amount covered by the legal obligation described in paragraph (5)(A), or

(B)

the amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period.

(7) Merchandise return period

(A)

Except as provided in subparagraph (B), the term “merchandise return period” means, with respect to any taxable year—

(i)

in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or

(ii)

in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year.

(B)

The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A).

(C)

Any change in the merchandise return period shall be treated as a change in the method of accounting.

(8) Certain evidence may be substituted for physical return of merchandise

Under regulations prescribed by the Secretary, the taxpayer may substitute, for the physical return of magazines, paperbacks, or records required by subsection (a), certification or other evidence that the magazine, paperback, or record has not been resold and will not be resold if such evidence—

(A)

is in the possession of the taxpayer at the close of the merchandise return period, and

(B)

is satisfactory to the Secretary.

(9) Repurchase by the taxpayer not treated as resale

A repurchase by the taxpayer shall be treated as an adjustment of the sales price rather than as a resale.

(1) Election of benefits

This section shall apply to qualified sales of magazines, paperbacks, or records, as the case may be, if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such sales are made. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribe and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

(2) Scope of election

An election made under this section shall apply to all qualified sales of magazines, paperbacks, or records, as the case may be, made in connection with the trade or business with respect to which the taxpayer has made the election.

(3) Period to which election applies

An election under this section shall be effective for the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.

(4) Treatment as method of accounting

Except to the extent inconsistent with the provisions of this section, for purposes of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting.

(d) 5-year spread of transitional adjustments for magazines

In applying section 481(c) with respect to any election under this section which applies to magazines, the period for taking into account any decrease in taxable income resulting from the application of section 481(a)(2) shall be the taxable year for which the election is made and the 4 succeeding taxable years.

(e) Suspense account for paperbacks and records

(1) In general

In the case of any election under this section which applies to paperbacks or records, in lieu of applying section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made.

(2) Initial opening balance

The opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the largest dollar amount of returned merchandise which would have been taken into account under this section for any of the 3 immediately preceding taxable years if this section had applied to such preceding 3 taxable years. This paragraph and paragraph (3) shall be applied by taking into account only amounts attributable to the trade or business for which such account is established.

(3) Adjustments in suspense account

At the close of each taxable year the suspense account shall be—

(A)

reduced the excess (if any) of—

(i)

the opening balance of the suspense account for the taxable year, over

(ii)

the amount excluded from gross income for the taxable year under subsection (a), or

(B)

increased (but not in excess of the initial opening balance) by the excess (if any) of—

(i)

the amount excluded from gross income for the taxable year under subsection (a), over

(ii)

the opening balance of the account for the taxable year.

(4) Gross income adjustments

(A) Reductions excluded from gross income

In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall be excluded from gross income for such taxable year.

(B) Increases added to gross income

In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year.

If the initial opening balance exceeds the dollar amount of returned merchandise which would have been taken into account under subsection (a) for the taxable year preceding the first taxable year for which the election is effective if this section had applied to such preceding taxable year, then an amount equal to the amount of such excess shall be included in gross income for such first taxable year.

(5) 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 to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary.

Source credit: (Added Pub. L. 95–600, title III, § 372(a), Nov. 6, 1978, 92 Stat. 2860; amended Pub. L. 115–141, div. U, title IV, § 401(a)(114), (115), Mar. 23, 2018, 132 Stat. 1189.)

history & why it existsrecord from the source credit

1978Enacted · Pub. L. 95-600 · 92 Stat. 2860
2018Amended · Pub. L. 115-141 · 132 Stat. 1189

A history note hasn’t been published yet. The record shows enactment by Pub. L. 95-600 on 1978-11-06.

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