26 U.S.C. § 444 — Election of taxable year other than re-

Page 1551 TITLE 26—INTERNAL REVENUE CODE § 444 12 months in the case of a debtor’s election to termi- nate a taxable year. 1978—Subsec. (b)(1). Pub. L. 95–600, § 703(o)(2), sub- stituted ‘‘modified taxable income for such short pe- riod’’ for ‘‘gross income for such short period (minus the deductions allowed by this chapter for the short pe- riod, but only the adjusted amount of the deductions for personal exemptions)’’. Subsec. (b)(2). Pub. L. 95–600, § 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 tax- able income on an annual basis’’. Subsec. (b)(3). Pub. L. 95–600, § 703(o)(3), added par. (3). Subsec. (d). Pub. L. 95–600, § 421(e)(2), substituted ‘‘Ad- justment in computing minimum tax for tax pref- erences’’ for ‘‘Adjustment in exclusion for computing minimum tax for tax preferences’’ in heading, redesig- nated existing provisions as par. (2) and as so redesig- nated applied par. (2) to corporations, and added par. (1). 1977—Subsec. (b)(1). Pub. L. 95–30 substituted ‘‘multi- plying the gross income for such short period (minus the deductions allowed by this chapter for the short pe- riod, 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 in- come by 12, and dividing the result by the number of months in the short period’’. 1976—Subsec. (a)(1). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (a)(3). Pub. L. 94–455, § 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, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (d). Pub. L. 94–455, § 301(e), substituted ‘‘$10,000’’ for ‘‘$30,000’’. Subsec. (e)(5). Pub. L. 94–455, § 1607(b)(1)(C), sub- stituted ‘‘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). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 104(b)(7) of Pub. L. 99–514 ap- plicable 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 ap- plicable 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 Pub. L. 97–448, title III, § 311(b)(1), Jan. 12, 1983, 96 Stat. 2411, 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 AMENDMENT Amendment by Pub. L. 96–589 applicable to bank- ruptcy 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 oth- erwise provided, as if it had been included in the provi- sions 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 Pub. L. 95–600, title VII, § 703(o)(4), Nov. 6, 1978, 92 Stat. 2943, 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 ap- plicable 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 Pub. L. 94–455, title III, § 301(g)(1), Oct. 4, 1976, 90 Stat. 1553, provided that the amendment made by section 301(e) of Pub. L. 94–455 is effective for items of tax pref- erences for taxable years beginning after Dec. 31, 1975, with certain exceptions. Amendment by section 1204(c)(2) of Pub. L. 94–455 ef- fective 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 sec- tion 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 begin- ning 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. § 444. Election of taxable year other than re- quired taxable year (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) Page 1552 TITLE 26—INTERNAL REVENUE CODE § 444 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 tax- able years In the case of an entity’s 1st taxable year be- ginning 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 pe- riod’’ 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 sub- section (a), then— (1) in the case of a partnership or S corpora- tion, such entity shall make the payments re- quired by section 7519, and (2) in the case of a personal service corpora- tion, 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 re- main in effect until the partnership, S cor- poration, or personal service corporation changes its taxable year or otherwise termi- nates such election. Any change to a re- quired taxable year may be made without the consent of the Secretary. (B) No further election If an election is terminated under subpara- graph (A) or paragraph (3)(A), the partner- ship, S corporation, or personal service cor- poration may not make another election under subsection (a). (3) Tiered structures, etc. (A) In general Except as otherwise provided in this para- graph— (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 part- nerships or S corporations (or both) all of which have the same taxable year. (e) Required taxable year For purposes of this section, the term ‘‘re- quired taxable year’’ means the taxable year de- termined under section 706(b), 1378, or 441(i) without taking into account any taxable year which is allowable by reason of business pur- poses. Solely for purposes of the preceding sen- tence, 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 ‘‘per- sonal 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. (Added Pub. L. 100–203, title X, § 10206(a)(1), Dec. 22, 1987, 101 Stat. 1330–397; amended Pub. L. 100–647, title II, § 2004(e)(1), (2)(A), (12), (13), Nov. 10, 1988, 102 Stat. 3600, 3602.) Editorial Notes AMENDMENTS 1988—Subsec. (a). Pub. L. 100–647, § 2004(e)(1)(A), sub- stituted ‘‘as otherwise provided in this section’’ for ‘‘as provided in subsections (b) and (c)’’. Subsec. (b)(4). Pub. L. 100–647, § 2004(e)(13), inserted ‘‘except as provided in regulations,’’ before ‘‘the term’’. Subsec. (d)(2)(A). Pub. L. 100–647, § 2004(e)(12), inserted ‘‘or otherwise terminates such election’’ after ‘‘its tax- able year’’. Subsec. (d)(2)(B). Pub. L. 100–647, § 2004(e)(1)(C), in- serted ‘‘or paragraph (3)(A)’’ after ‘‘under subparagraph (A)’’. Subsec. (d)(3). Pub. L. 100–647, § 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, § 2004(e)(2)(A), added subsec. (f) and redesignated former subsec. (f) as (g). Statutory Notes and Related Subsidiaries 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 Pub. L. 100–203, title X, § 10206(d), Dec. 22, 1987, 101 Stat. 1330–403, as amended by Pub. L. 100–647, title II, § 2004(e)(11), Nov. 10, 1988, 102 Stat. 3602, provided that: ‘‘(1) IN GENERAL.—Except as provided in this sub- section, the amendments made by this section [enact- ing this section and sections 280H and 7519 of this title] Page 1553 TITLE 26—INTERNAL REVENUE CODE § 447 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 De- cember 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 De- cember 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 cal- endar 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 tax- able 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 defer- ral period of the taxable year being changed. The pre- ceding sentence shall apply only in the case of an elec- tion under section 444 of such Code made for a taxable year beginning before 1989.’’ PART II—METHODS OF ACCOUNTING 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. SUBPART A—METHODS OF ACCOUNTING IN GENERAL Sec. 446. General rule for methods of accounting. 447. Method of accounting for corporations en- gaged in farming. 448. Limitation on use of cash method of account- ing. Editorial Notes AMENDMENTS 1986—Pub. L. 99–514, title VIII, § 801(c), Oct. 22, 1986, 100 Stat. 2348, added item 448. 1976—Pub. L. 94–455, title II, § 207(c)(1)(B), Oct. 4, 1976, 90 Stat. 1541, added item 447. § 446. General rule for methods of accounting (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 meth- od 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 account- ing— (1) the cash receipts and disbursements method; (2) an accrual method; (3) any other method permitted by this chap- ter; or (4) any combination of the foregoing meth- ods 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 Sec- retary. (f) Failure to request change of method of ac- counting If the taxpayer does not file with the Sec- retary a request to change the method of ac- counting, the absence of the consent of the Sec- retary 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. (Aug. 16, 1954, ch. 736, 68A Stat. 151; Pub. L. 94–455, title XIX, § 1906 (b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, § 161(a), July 18, 1984, 98 Stat. 696.) Editorial Notes 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’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 161(b), July 18, 1984, 98 Stat. 697, 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].’’ § 447. Method of accounting for corporations en- gaged in farming (a) General rule Except as otherwise provided by law, the tax- able 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 part- ner in such partnership, shall be computed on an accrual method of ac- counting. This section shall not apply to the trade or business of operating a nursery or sod