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26 U.S.C. § 481 — Adjustments required by changes in method of accounting
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** In computing the taxpayer’s taxable income for any taxable year (referred to in this section as the “year of the change”)—
(1) if such computation is under a method of accounting different from the method under which the taxpayer’s taxable income for the preceding taxable year was computed, then
(2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.
**(b) Limitation on tax where adjustments are substantial**
(1) **Three year allocation** — If—
(A) the method of accounting from which the change is made was used by the taxpayer in computing his taxable income for the 2 taxable years preceding the year of the change, and
(B) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000,
then the tax under this chapter attributable to such increase in taxable income shall not be greater than the aggregate increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if one-third of such increase in taxable income were included in taxable income for the year of the change and one-third of such increase were included for each of the 2 preceding taxable years.
(2) **Allocation under new method of accounting** — If—
(A) the increase in taxable income for the year of the change which results solely by reason of the adjustments required b
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Source location: Title 26, Chapter 1, § 481; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** In computing the taxpayer’s taxable income for any taxable year (referred to in this section as the “year of the change”)—
(1) if such computation is under a method of accounting different from the method under which the taxpayer’s taxable income for the preceding taxable year was computed, then
(2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.
**(b) Limitation on tax where adjustments are substantial**
(1) **Three year allocation** — If—
(A) the method of accounting from which the change is made was used by the taxpayer in computing his taxable income for the 2 taxable years preceding the year of the change, and
(B) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000,
then the tax under this chapter attributable to such increase in taxable income shall not be greater than the aggregate increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if one-third of such increase in taxable income were included in taxable income for the year of the change and one-third of such increase were included for each of the 2 preceding taxable years.
(2) **Allocation under new method of accounting** — If—
(A) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000, and
(B) the taxpayer establishes his taxable income (under the new method of accounting) for one or more taxable years consecutively preceding the taxable year of the change for which the taxpayer in computing taxable income used the method of accounting from which the change is made,
then the tax under this chapter attributable to such increase in taxable income shall not be greater than the net increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if the adjustments required by subsection (a)(2) were allocated to the taxable year or years specified in subparagraph (B) to which they are properly allocable under the new method of accounting and the balance of the adjustments required by subsection (a)(2) was allocated to the taxable year of the change.
(3) **Special rules for computations under paragraphs (1) and (2)** — For purposes of this subsection—
(A) There shall be taken into account the increase or decrease in tax for any taxable year preceding the year of the change to which no adjustment is allocated under paragraph (1) or (2) but which is affected by a net operating loss (as defined in section 172) or by a capital loss carryback or carryover (as defined in section 1212), determined with reference to taxable years with respect to which adjustments under paragraph (1) or (2) are allocated.
(B) The increase or decrease in the tax for any taxable year for which an assessment of any deficiency, or a credit or refund of any overpayment, is prevented by any law or rule of law, shall be determined by reference to the tax previously determined (within the meaning of section 1314(a)) for such year.
**(c) Adjustments under regulations** In the case of any change described in subsection (a), the taxpayer may, in such manner and subject to such conditions as the Secretary may by regulations prescribe, take the adjustments required by subsection (a)(2) into account in computing the tax imposed by this chapter for the taxable year or years permitted under such regulations.
**(d) Adjustments attributable to conversion from S corporation to C corporation**
(1) **In general** — In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change.
(2) **Eligible terminated S corporation** — For purposes of this subsection, the term “eligible terminated S corporation” means any C corporation—
(A) which—
(i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act, and
(ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and
(B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Corporations**
(1) **In general** — If a corporation has a net capital loss for any taxable year (hereinafter in this paragraph referred to as the “loss year”), the amount thereof shall be—
(A) a capital loss carryback to each of the 3 taxable years preceding the loss year, but only to the extent—
(i) such loss is not attributable to a foreign expropriation capital loss, and
(ii) the carryback of such loss does not increase or produce a net operating loss (as defined in section 172(c)) for the taxable year to which it is being carried back;
(B) except as provided in subparagraph (C), a capital loss carryover to each of the 5 taxable years succeeding the loss year; and
(C) a capital loss carryover to each of the 10 taxable years succeeding the loss year, but only to the extent such loss is attributable to a foreign expropriation loss,
and shall be treated as a short-term capital loss in each such taxable year. The entire amount of the net capital loss for any taxable year shall be carried to the earliest of the taxable years to which such loss may be carried, and the portion of such loss which shall be carried to each of the other taxable years to which such loss may be carried shall be the excess, if any, of such loss over the total of the capital gain net income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the capital gain net income for any such prior taxable year shall be computed without regard to the net capital loss for the loss year or for any taxable year thereafter. In the case of any net capital loss which cannot be carried back in full to a preceding taxable year by reason of clause (ii) of subparagraph (A), the capital gain net income for such prior taxable year sha
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Definition of surviving spouse**
(1) **In general** — For purposes of section 1, the term “surviving spouse” means a taxpayer—
(A) whose spouse died during either of his two taxable years immediately preceding the taxable year, and
(B) who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent (i) who (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer, and (ii) with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.
(2) **Limitations** — Notwithstanding paragraph (1), for purposes of section 1 a taxpayer shall not be considered to be a surviving spouse—
(A) if the taxpayer has remarried at any time before the close of the taxable year, or
(B) unless, for the taxpayer’s taxable year during which his spouse died, a joint return could have been made under the provisions of section 6013 (without regard to subsection (a)(3) thereof).
(3) **Special rule where deceased spouse was in missing status** — If an individual was in a missing status (within the meaning of section 6013(f)(3)) as a result of service in a combat zone (as determined for purposes of section 112) and if such individual remains in such status until the date referred to in subparagraph (A) or (B), then, for purposes of paragraph (1)(A), the date on which such individual died shall be treated as the earlier of the date determined under subparagraph (A) or the date determined under subparagraph (B):
(A) the date on which the determination is made under [section 556 of title 37](https://uscode.house.gov/view.xhtml?req=granuleid:
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** In the case of the acquisition of assets of a corporation by another corporation—
(1) in a distribution to such other corporation to which section 332 (relating to liquidations of subsidiaries) applies; or
(2) in a transfer to which section 361 (relating to nonrecognition of gain or loss to corporations) applies, but only if the transfer is in connection with a reorganization described in subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1),
the acquiring corporation shall succeed to and take into account, as of the close of the day of distribution or transfer, the items described in subsection (c) of the distributor or transferor corporation, subject to the conditions and limitations specified in subsections (b) and (c). For purposes of the preceding sentence, a reorganization shall be treated as meeting the requirements of subparagraph (D) or (G) of section 368(a)(1) only if the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met.
**(b) Operating rules** Except in the case of an acquisition in connection with a reorganization described in subparagraph (F) of section 368(a)(1)—
(1) The taxable year of the distributor or transferor corporation shall end on the date of distribution or transfer.
(2) For purposes of this section, the date of distribution or transfer shall be the day on which the distribution or transfer is completed; except that, under regulations prescribed by the Secretary, the date when substantially all of the property has been distributed or transferred may be used if the distributor or transferor corporation ceases all operations, other than liquidating activities, after such date.
(3) The corporation acquiring property in a distribution or transfer described in subsection (a) shall not be entitle
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method.
**(b) Installment sale defined** For purposes of this section—
(1) **In general** — The term “installment sale” means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs.
(2) **Exceptions** — The term “installment sale” does not include—
(A) *Dealer dispositions* — Any dealer disposition (as defined in subsection (l)).
(B) *Inventories of personal property* — A disposition of personal property of a kind which is required to be included in the inventory of the taxpayer if on hand at the close of the taxable year.
**(c) Installment method defined** For purposes of this section, the term “installment method” means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit (realized or to be realized when payment is completed) bears to the total contract price.
**(d) Election out**
(1) **In general** — Subsection (a) shall not apply to any disposition if the taxpayer elects to have subsection (a) not apply to such disposition.
(2) **Time and manner for making election** — Except as otherwise provided by regulations, an election under paragraph (1) with respect to a disposition may be made only on or before the due date prescribed by law (including extensions) for filing the taxpayer’s return of the tax imposed by this chapter for the taxable year in which the disposition occurs. Such an election shall be made in the manner prescribed by regulations.
(3) **Election revocable only with consent**
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** There shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness.
**(b) Installment purchases where interest charge is not separately stated**
(1) **General rule** — If personal property or educational services are purchased under a contract—
(A) which provides that payment of part or all of the purchase price is to be made in installments, and
(B) in which carrying charges are separately stated but the interest charge cannot be ascertained,
then the payments made during the taxable year under the contract shall be treated for purposes of this section as if they included interest equal to 6 percent of the average unpaid balance under the contract during the taxable year. For purposes of the preceding sentence, the average unpaid balance is the sum of the unpaid balance outstanding on the first day of each month beginning during the taxable year, divided by 12. For purposes of this paragraph, the term “educational services” means any service (including lodging) which is purchased from an educational organization described in section 170(b)(1)(A)(ii) and which is provided for a student of such organization.
(2) **Limitation** — In the case of any contract to which paragraph (1) applies, the amount treated as interest for any taxable year shall not exceed the aggregate carrying charges which are properly attributable to such taxable year.
**(c) Redeemable ground rents** For purposes of this subtitle, any annual or periodic rental under a redeemable ground rent (excluding amounts in redemption thereof) shall be treated as interest on an indebtedness secured by a mortgage.
**(d) Limitation on investment interest**
(1) **In general** — In the case of a taxpayer other than a corporation, the amount al
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Whenever in the opinion of the Secretary the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.
**(b) Estimates of inventory shrinkage permitted** A method of determining inventories shall not be treated as failing to clearly reflect income solely because it utilizes estimates of inventory shrinkage that are confirmed by a physical count only after the last day of the taxable year if—
(1) the taxpayer normally does a physical count of inventories at each location on a regular and consistent basis, and
(2) the taxpayer makes proper adjustments to such inventories and to its estimating methods to the extent such estimates are greater than or less than the actual shrinkage.
**(c) Exemption for certain small businesses**
(1) **In general** — In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year—
(A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and
(B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either—
(i) treats inventory as non-incidental materials and supplies, or
(ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable
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Federal law — U.S. Code and appendices · legal_authorities
Page 1655
TITLE 26—INTERNAL REVENUE CODE
§ 481
Sec.
482.
Allocation of income and deductions among
taxpayers.
483.
Interest on certain deferred payments.
Editorial Notes
AMENDMENTS
1964—Pub. L. 88–272, title II, § 224(b), Feb. 26, 1964, 78
Stat. 79, added item 483.
§ 481. Adjustments required by changes in meth-
od of accounting
(a) General rule
In computing the taxpayer’s taxable income
for any taxable year (referred to in this section
as the ‘‘year of the change’’)—
(1) if such computation is under a method of
accounting different from the method under
which the taxpayer’s taxable income for the
preceding taxable year was computed, then
(2) there shall be taken into account those
adjustments which are determined to be nec-
essary solely by reason of the change in order
to prevent amounts from being duplicated or
omitted, except there shall not be taken into
account any adjustment in respect of any tax-
able year to which this section does not apply
unless the adjustment is attributable to a
change in the method of accounting initiated
by the taxpayer.
(b) Limitation on tax where adjustments are sub-
stantial
(1) Three year allocation
If—
(A) the method of accounting from which
the change is made was used by the taxpayer
in computing his taxable income for the 2
taxable years preceding the year of the
change, and
(B) the increase in taxable income for the
year of the change which results solely by
reason of the adjustments required by sub-
section (a)(2) exceeds $3,000,
then the tax under this chapter attributable to
such increase in taxable income shall not be
greater than the aggregate increase in the
taxes under this chapter (or under the cor-
responding provisions of prior revenue laws)
which would result if one-third of such i
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 481
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