§458 Magazines, Paperbacks, and Records Returned After the Close of the Taxable Year

Summary

Allows a taxpayer who uses accrual accounting to choose not to count as income sales of magazines, paperback books, or records that are returned before a set deadline. A qualified sale is one where the seller legally must reduce the price if the item is not resold and the seller actually makes that price adjustment when it fails to resell. The amount left out of income is the smaller of the legal obligation amount or the amount the seller agrees to before the merchandise return period ends. A repurchase counts as a price adjustment. Instead of getting the physical items back, the seller can keep written proof that the item won’t be resold if that proof is on hand at the close of the return period and is acceptable. Key terms: magazine = any periodical; paperback = a book with a flexible cover (not a magazine); record = a disc, tape, or similar sound carrier. The merchandise return period is 2 months and 15 days after the tax year ends for magazines, and 4 months and 15 days after the tax year ends for paperbacks and records (a taxpayer may pick a shorter period). The taxpayer must elect this rule for the trade or business by the tax return deadline; the choice then applies to all such sales and stays in effect for later years unless the IRS allows revocation. Special rules apply: for magazines, income decreases are spread over the election year and the 4 following years; for paperbacks and records, the taxpayer uses a suspense account set by rules that starts with the largest of the prior 3 years’ returns and is adjusted each year, with decreases excluded from income and increases included.