26 U.S.C. § 481 — Adjustments required by changes in meth-

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 in- crease in taxable income were included in tax- able 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 sub- section (a)(2) exceeds $3,000, and (B) the taxpayer establishes his taxable in- come (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 in- come 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 sub- section (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 para- graphs (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 carry- over (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 sub- section (a), the taxpayer may, in such manner and subject to such conditions as the Secretary may by regulations prescribe, take the adjust- ments 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 cor- poration, any adjustment required by sub- section (a)(2) which is attributable to such corporation’s revocation described in para- graph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period begin- ning 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 be- fore 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 rev- ocation of its election under section 1362(a), and (B) the owners of the stock of which, deter- mined on the date such revocation is made, are the same owners (and in identical pro- portions) as on the date of such enactment. (Aug. 16, 1954, ch. 736, 68A Stat. 160; Pub. L. 85–866, title I, § 29(a), (b), Sept. 2, 1958, 72 Stat. Page 1656 TITLE 26—INTERNAL REVENUE CODE § 481 1626–1628; Pub. L. 91–172, title V, § 512(f)(4), Dec. 30, 1969, 83 Stat. 641; Pub. L. 94–455, title XIX, §§ 1901(a)(70), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834; Pub. L. 96–471, § 2(b)(3), Oct. 19, 1980, 94 Stat. 2254; Pub. L. 113–295, div. A, title II, § 221(a)(61), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, § 13543(a), Dec. 22, 2017, 131 Stat. 2155.) Editorial Notes REFERENCES IN TEXT The date of the enactment of the Tax Cuts and Jobs Act and the date of such enactment, referred to in sub- sec. (d)(2), probably mean the date of enactment of title I of Pub. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Pub. L. 115–97 included such Short Title, but it was not enacted as part of title I of Pub. L. 115–97. AMENDMENTS 2017—Subsec. (d). Pub. L. 115–97 added subsec. (d). 2014—Subsec. (b)(3)(C). Pub. L. 113–295 struck out sub- par. (C) which read as follows: ‘‘In applying section 7807(b)(1), the provisions of chapter 1 (other than sub- chapter E, relating to self-employment income) and chapter 2 of the Internal Revenue Code of 1939 shall be treated as the corresponding provisions of the Internal Revenue Code of 1939.’’ 1980—Subsec. (d). Pub. L. 96–471 struck out subsec. (d) which provided that this section was not to apply to a change to which section 453 of this title, relating to change to installment method, applied. 1976—Subsecs. (b)(1), (2). Pub. L. 94–455, § 1901(a)(70)(B), struck out ‘‘, other than the amount of such adjustments to which paragraph (4) or (5) applies,’’ after ‘‘required by subsection (a)(2)’’. Subsec. (b)(4), (5), (6). Pub. L. 94–455, § 1901(a)(70)(A), struck out par. (4) which related to special rule for pre- 1954 general adjustments, par. (5) which related to spe- cial rule for pre-1954 adjustments in case of certain de- cedents, and par. (6) which related to the application of the special rule for pre-1954 general adjustments. Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. 1969—Subsec. (b)(3)(A). Pub. L. 91–172 substituted ‘‘loss carryback or carryover’’ for ‘‘loss carryover’’. 1958—Subsec. (a)(2). Pub. L. 85–866, § 29(a)(1), inserted ‘‘unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer’’, after ‘‘does not apply’’. Subsec. (b)(1). Pub. L. 85–866, § 29(b)(1)–(3), inserted ‘‘, other than the amount of such adjustments to which paragraph (4) or (5) applies,’’ after ‘‘subsection (a)(2)’’ and substituted ‘‘the aggregate increase in the taxes’’ for ‘‘the aggregate of the taxes’’ and ‘‘which would re- sult if one-third of such increase in taxable income’’ for ‘‘which would result if one-third of such increase’’. Subsec. (b)(2). Pub. L. 85–866, § 29(b)(1), (4), inserted ‘‘other than the amount of such adjustments to which paragraph (4) or (5) applies,’’ after ‘‘subsection (a)(2)’’, wherever appearing and ‘‘(or under the corresponding provisions of prior revenue laws)’’ after ‘‘the net in- crease in the taxes under this Chapter’’. Subsec. (b)(3)(A). Pub. L. 85–866, § 29(b)(5), substituted ‘‘paragraph (1) or (2)’’ for ‘‘paragraph (2)’’, wherever ap- pearing. Subsec. (b)(4) to (6). Pub. L. 85–866, § 29(a)(2), added pars. (4) to (6). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1980 AMENDMENT For effective date of amendment by Pub. L. 96–471, see section 6(a)(1) of Pub. L. 96–471, set out as an Effec- tive Date note under section 453 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(a)(70) of Pub. L. 94–455 ef- fective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1969 AMENDMENT Amendment by Pub. L. 91–172 applicable with respect to net capital losses sustained in taxable years begin- ning after Dec. 31, 1969, see section 512(g) of Pub. L. 91–172, set out as a note under section 1212 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Pub. L. 85–866, title I, § 29(d), Sept. 2, 1958, 72 Stat. 1629, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and section 381 of this title] shall apply with respect to any change in a method of accounting where the year of the change (within the meaning of section 481 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) is a taxable year beginning after December 31, 1953, and ending after August 16, 1954. ‘‘(2) EXCEPTION FOR CERTAIN AGREEMENTS.—The amendments made by subsections (a), (b)(I), and (c) [amending this section and section 381 of this title] shall not apply if before the date of the enactment of this Act [Sept. 2, 1958]— ‘‘(A) the taxpayer applied for a change in the meth- od of accounting in the manner provided by regula- tions prescribed by the Secretary of the Treasury or his delegate, and ‘‘(B) the taxpayer and the Secretary of the Treas- ury or his delegate agreed to the terms and condi- tions for making the change.’’ CHANGES IN TREATMENT OF POLICYHOLDER DIVIDENDS BY QUALIFIED GROUP SELF-INSURERS’ FUNDS Pub. L. 101–239, title VII, § 7816(m), Dec. 19, 1989, 103 Stat. 2421, provided that: ‘‘If, for the 1st taxable year beginning on or after January 1, 1987, a qualified group self-insurers’ fund changes its treatment of policy- holder dividends to take into account such dividends no earlier than the date that the State regulatory author- ity determines the amount of the policyholder dividend that may be paid, then such change shall be treated as a change in a method of accounting and no adjustment under section 481(a) of the Internal Revenue Code of 1986 shall be made with respect to such change in meth- od of accounting.’’ TRANSITIONAL PROVISIONS FOR INCOME TAX TREATMENT OF DEALER RESERVE INCOME Pub. L. 86–459, May 13, 1960, 74 Stat. 124, authorized any person who computed taxable income under the ac- crual method of accounting for his most recent taxable year ending on or before June 22, 1959, and who treated dealer reserve income for such taxable year as accruable for a subsequent taxable year, to elect before Sept. 1, 1960, to have section 481 of this title apply to the treatment for income tax purposes of dealer reserve income. ELECTION TO RETURN TO FORMER METHOD OF ACCOUNTING Pub. L. 85–866, title I, § 29(e), Sept. 2, 1958, 72 Stat. 1629, authorized an election by certain taxpayers, who, for any taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, and before Sept. 2, 1958, com- puted their taxable incomes using different accounting methods in succeeding taxable years, to return to their first method of accounting, where the election was Page 1657 TITLE 26—INTERNAL REVENUE CODE § 483 made within six months after Sept. 2, 1958. Claims for refunds of overpayments of tax resulting from the elec- tion were to be filed within one year after the date of the election. Such an election was to be considered a consent to an assessment of a deficiency resulting from the election, where the assessment is made within one year after the date of the election. § 482. Allocation of income and deductions among taxpayers In any case of two or more organizations, trades, or businesses (whether or not incor- porated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same in- terests, the Secretary may distribute, appor- tion, or allocate gross income, deductions, cred- its, or allowances between or among such orga- nizations, trades, or businesses, if he determines that such distribution, apportionment, or allo- cation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses. In the case of any transfer (or license) of intangible property (within the meaning of section 367(d)(4)), the income with respect to such trans- fer or license shall be commensurate with the income attributable to the intangible. For pur- poses of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such trans- fers. (Aug. 16, 1954, ch. 736, 68A Stat. 162; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title XII, § 1231(e)(1), Oct. 22, 1986, 100 Stat. 2562; Pub. L. 115–97, title I, § 14221(b)(2), Dec. 22, 2017, 131 Stat. 2219; Pub. L. 115–141, div. U, title IV, § 401(d)(1)(D)(viii)(III), Mar. 23, 2018, 132 Stat. 1207.) Editorial Notes AMENDMENTS 2018—Pub. L. 115–141 substituted ‘‘section 367(d)(4)’’ for ‘‘section 936(h)(3)(B)’’. 2017—Pub. L. 115–97 inserted at end ‘‘For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a trans- fer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such trans- fers.’’ 1986—Pub. L. 99–514 inserted at end ‘‘In the case of any transfer (or license) of intangible property (within the meaning of section 936(h)(3)(B)), the income with respect to such transfer or license shall be commensu- rate with the income attributable to the intangible.’’ 1976—Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to transfers in taxable years beginning after Dec. 31, 2017, see sec- tion 14221(c)(1) of Pub. L. 115–97, set out as a note under section 367 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, but only with re- spect to transfers after Nov. 16, 1985, or licenses granted after such date, or before such date with respect to property not in existence or owned by the taxpayer on such date, except that for purposes of [former] section 936(h)(5)(C) of this title, such amendment applicable to taxable years beginning after Dec. 31, 1986, without re- gard to when the transfer or license was made, see sec- tion 1231(g)(2) of Pub. L. 99–514, set out as a note under section 367 of this title. REGULATIONS For requirement that, not later than 180 days after July 18, 1984, the Secretary of the Treasury modify the safe harbor interest rates applicable under the regula- tions prescribed under this section so that such rates are consistent with the rates applicable under section 483 of this title by reason of the amendments made by Pub. L. 98–369, see section 44(b)(2) of Pub. L. 98–369, set out as an Effective Date note under section 1271 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining li- ability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. STUDY OF APPLICATION AND ADMINISTRATION OF THIS SECTION Pub. L. 101–508, title XI, § 11316, Nov. 5, 1990, 104 Stat. 1388–458, directed Secretary of the Treasury or his dele- gate to conduct a study of the application and adminis- tration of section 482 of the Internal Revenue Code of 1986 and not later than Mar. 1, 1992, submit to Com- mittee on Ways and Means of House of Representatives and Committee on Finance of Senate a report on the study, together with such recommendations as he deemed advisable. § 483. Interest on certain deferred payments (a) Amount constituting interest For purposes of this title, in the case of any payment— (1) under any contract for the sale or ex- change of any property, and (2) to which this section applies, there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such pay- ment. (b) Total unstated interest For purposes of this section, the term ‘‘total unstated interest’’ means, with respect to a con- tract for the sale or exchange of property, an amount equal to the excess of— (1) the sum of the payments to which this section applies which are due under the con- tract, over (2) the sum of the present values of such pay- ments and the present values of any interest payments due under the contract. For purposes of the preceding sentence, the present value of a payment shall be determined under the rules of section 1274(b)(2) using a dis-