Title 26 — Internal Revenue CodeRelease 119-73
§458 Magazines, Paperbacks, and Records Returned After the Close of the Taxable Year
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter E— Accounting Periods and Methods of Accounting › Part II— METHODS OF ACCOUNTING › Subpart B— Taxable Year for Which Items of Gross Income Included › § 458
Summary
Sellers of magazines, paperbacks, and records who use accrual accounting can choose not to count income from sales of items that get returned shortly after the tax year ends. The sale must be a qualified sale: at the time of sale the seller has a legal duty to adjust the price if the item is not resold, and the price actually gets adjusted. Returns count if they come back within 2 months and 15 days after the year closes for magazines, or 4 months and 15 days for paperbacks and records. With IRS approval, written proof that an item was not and will not be resold can take the place of a physical return. The election is made per trade or business and covers all qualified sales of that category; magazines, paperbacks, and records each count as a separate category. Once made, it stays in effect for future years unless the IRS consents to revoking it, and it is treated as a method of accounting. For magazines, any drop in taxable income from switching is spread over the election year and the 4 following years. For paperbacks and records, the seller instead sets up a suspense account based on the largest return amount from the prior 3 years, which is adjusted each year and can add to or subtract from income.
Full Legal Text
Title 26, §458
Internal Revenue Code — Source: USLM XML via OLRC
(a)A taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period.
(b)For purposes of this section—
(1)The term “magazine” includes any other periodical.
(2)The term “paperback” means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine.
(3)The term “record” means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded.
(4)If a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise.
(5)A sale of a magazine, paperback, or record is a qualified sale if—
(A)at the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and
(B)the sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it.
(6)The amount excluded under this section with respect to any qualified sale shall be the lesser of—
(A)the amount covered by the legal obligation described in paragraph (5)(A), or
(B)the amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period.
(7)(A)Except as provided in subparagraph (B), the term “merchandise return period” means, with respect to any taxable year—
(i)in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or
(ii)in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year.
(B)The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A).
(C)Any change in the merchandise return period shall be treated as a change in the method of accounting.
(8)Under regulations prescribed by the Secretary, the taxpayer may substitute, for the physical return of magazines, paperbacks, or records required by subsection (a), certification or other evidence that the magazine, paperback, or record has not been resold and will not be resold if such evidence—
(A)is in the possession of the taxpayer at the close of the merchandise return period, and
(B)is satisfactory to the Secretary.
(9)A repurchase by the taxpayer shall be treated as an adjustment of the sales price rather than as a resale.
(c)(1)This section shall apply to qualified sales of magazines, paperbacks, or records, as the case may be, if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such sales are made. An election under this section may be made without the consent of the Secretary. The election shall be made in such manner as the Secretary may by regulations prescribe and shall be made for any taxable year not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).
(2)An election made under this section shall apply to all qualified sales of magazines, paperbacks, or records, as the case may be, made in connection with the trade or business with respect to which the taxpayer has made the election.
(3)An election under this section shall be effective for the taxable year for which it is made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to the revocation of such election.
(4)Except to the extent inconsistent with the provisions of this section, for purposes of this subtitle, the computation of taxable income under an election made under this section shall be treated as a method of accounting.
(d)In applying section 481(c) with respect to any election under this section which applies to magazines, the period for taking into account any decrease in taxable income resulting from the application of section 481(a)(2) shall be the taxable year for which the election is made and the 4 succeeding taxable years.
(e)(1)In the case of any election under this section which applies to paperbacks or records, in lieu of applying section 481, the taxpayer shall establish a suspense account for the trade or business for the taxable year for which the election is made.
(2)The opening balance of the account described in paragraph (1) for the first taxable year to which the election applies shall be the largest dollar amount of returned merchandise which would have been taken into account under this section for any of the 3 immediately preceding taxable years if this section had applied to such preceding 3 taxable years. This paragraph and paragraph (3) shall be applied by taking into account only amounts attributable to the trade or business for which such account is established.
(3)At the close of each taxable year the suspense account shall be—
(A)reduced the excess (if any) of—
(i)the opening balance of the suspense account for the taxable year, over
(ii)the amount excluded from gross income for the taxable year under subsection (a), or
(B)increased (but not in excess of the initial opening balance) by the excess (if any) of—
(i)the amount excluded from gross income for the taxable year under subsection (a), over
(ii)the opening balance of the account for the taxable year.
(4)(A)In the case of any reduction under paragraph (3)(A) in the account for the taxable year, an amount equal to such reduction shall be excluded from gross income for such taxable year.
(B)In the case of any increase under paragraph (3)(B) in the account for the taxable year, an amount equal to such increase shall be included in gross income for such taxable year.
(5)The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party to the transaction by reason of subchapter C shall be determined under regulations prescribed by the Secretary.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2018—Subsec. (b)(9). Pub. L. 115–141, § 401(a)(114), substituted “Repurchase” for “Repurchased” in heading. Subsec. (c)(1). Pub. L. 115–141, § 401(a)(115), substituted “
Regulations
prescribe” for “
Regulations
prescribed”.
Statutory Notes and Related Subsidiaries
Effective Date
Pub. L. 95–600, title III, § 372(c), Nov. 6, 1978, 92 Stat. 2862, provided that: “The
Amendments
made by this section [enacting this section] shall apply to taxable years beginning after September 30, 1979.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 458
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73