§446 — Title 26 Internal Revenue Code | U.S. Code

Summary

Figure taxable income using the accounting method you normally use in your books. If you have no regular method or your method doesn't clearly show income, the IRS can require a method that does. You may use the cash method, an accrual method, other methods allowed by law, or a permitted mix of those methods. If you run more than one business, each business can use a different method. If you change your regular method, you must get the IRS’s permission before using the new method to compute taxes. If you change without filing for permission, the lack of IRS approval cannot be used to avoid or reduce any penalty or added tax.

Title 26, §446

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)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 method as, in the opinion of the Secretary, does clearly reflect income.

(c)Subject to the provisions of subsections (a) and (b), a taxpayer may compute taxable income under any of the following methods of accounting—

(1)the cash receipts and disbursements method;

(2)an accrual method;

(3)any other method permitted by this chapter; or

(4)any combination of the foregoing methods permitted under regulations prescribed by the Secretary.

(d)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)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 Secretary.

(f)If the taxpayer does not file with the Secretary a request to change the method of accounting, the absence of the consent of the Secretary 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.

Notes & Related Subsidiaries

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].”

§446 General Rule for Methods of Accounting