§458 Magazines, paperbacks, and records returned after the close of the taxable year

Summary

An accrual-basis taxpayer can choose not to count as income the sales of magazines, paperbacks, or records that are returned before a set deadline (the “merchandise return period”), as long as the sale is a “qualified sale” and the seller actually reduces the price because the item was not resold. The excluded amount is the smaller of the dollar amount the seller was legally bound to refund or the amount the seller agreed to before the merchandise return period ended. A repurchase by the seller counts as a price adjustment, not a resale. Defined terms (one line each): magazine = any periodical; paperback = a book with a flexible cover (not a magazine); record = a disc, tape, or similar item that holds sound. A qualified sale = a sale where the seller must adjust the price if the item is not resold and the seller makes that adjustment. The merchandise return period = 2 months and 15 days after year end for magazines, and 4 months and 15 days after year end for paperbacks and records (the taxpayer may pick a shorter period). The IRS can allow written or other proof instead of physical returns if the seller has it at the end of the period. To use this rule the taxpayer must elect it for a trade or business on the tax return by the filing deadline (including extensions). The election covers all such sales in that business and stays in effect for later years unless the Secretary agrees to revoke it. Special accounting rules apply: for magazines any income decrease is taken over the election year and the next four years; for paperbacks and records the taxpayer sets up a suspense account with rules for annual increases or decreases.