---
kind: "section"
citation: "26 U.S.C. § 458"
title: "26"
title_heading: "Internal Revenue Code"
number: "458"
heading: "Magazines, paperbacks, and records returned after the close of the taxable year"
release: "119-102"
url: "https://uscodex.org/usc/26/458"
units:
  - "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. Magazines, paperbacks, and records returned after the close of the taxable year

- (a) **Exclusion from gross income—** A [taxpayer](/usc/26/1313.md?p=b) who is on an accrual method of accounting may elect not to include in the gross income for the [taxable year](/usc/26/441.md?p=b) the income attributable to the qualified sale of any [magazine](#b-1), [paperback](#b-2), or [record](#b-3) which is returned to the [taxpayer](/usc/26/1313.md?p=b) before the close of the [merchandise return period](#b-7-A).
- (b) **Definitions and special rules—** For purposes of this section—
  - (1) **Magazine—** The term “magazine” [includes](/usc/26/7701.md?p=c) any other periodical.
  - (2) **Paperback—** 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](#b-1).
  - (3) **Record—** The term “record” means a [disc](/usc/26/992.md?p=a-1), tape, or similar object on which musical, spoken, or other sounds are recorded.
  - (4) **Separate application with respect to magazines, paperbacks, and records—** If a [taxpayer](/usc/26/1313.md?p=b) makes qualified sales of more than one category of merchandise in connection with the same [trade or business](/usc/26/7701.md?p=a-26), this section shall be applied as if the qualified sales of each such category were made in connection with a separate [trade or business](/usc/26/7701.md?p=a-26). For purposes of the preceding sentence, [magazines](#b-1), [paperbacks](#b-2), and [records](#b-3) shall each be treated as a separate category of merchandise.
  - (5) **Qualified sale—** A sale of a [magazine](#b-1), [paperback](#b-2), or [record](#b-3) is a qualified sale if—
    - (A) at the time of sale, the [taxpayer](/usc/26/1313.md?p=b) has a legal obligation to adjust the sales price of such [magazine](#b-1), [paperback](#b-2), or [record](#b-3) if it is not resold, and
    - (B) the sales price of such [magazine](#b-1), [paperback](#b-2), or [record](#b-3) is adjusted by the [taxpayer](/usc/26/1313.md?p=b) because of a failure to resell it.
  - (6) **Amount excluded—** 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)](#b-5-A), or
    - (B) the amount of the adjustment agreed to by the [taxpayer](/usc/26/1313.md?p=b) before the close of the [merchandise return period](#b-7-A).
  - (7) **Merchandise return period—**
    - (A) Except as provided in [subparagraph (B)](#b-7-B), the term “merchandise return period” means, with respect to any [taxable year](/usc/26/441.md?p=b)—
      - (i) in the case of [magazines](#b-1), the period of 2 months and 15 days first occurring after the close of [taxable year](/usc/26/441.md?p=b), or
      - (ii) in the case of [paperbacks](#b-2) and [records](#b-3), the period of 4 months and 15 days first occurring after the close of the [taxable year](/usc/26/441.md?p=b).
    - (B) The [taxpayer](/usc/26/1313.md?p=b) may select a shorter period than the [applicable period](/usc/26/417.md?p=a-3-B-ii) set forth in [subparagraph (A)](#b-7-A).
    - (C) Any change in the [merchandise return period](#b-7-A) shall be treated as a change in the method of accounting.
  - (8) **Certain evidence may be substituted for physical return of merchandise—** Under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), the [taxpayer](/usc/26/1313.md?p=b) may substitute, for the physical [return](/usc/26/6103.md?p=b-1) of [magazines](#b-1), [paperbacks](#b-2), or [records](#b-3) required by [subsection (a)](#a), certification or other evidence that the [magazine](#b-1), [paperback](#b-2), or [record](#b-3) has not been resold and will not be resold if such evidence—
    - (A) is in the possession of the [taxpayer](/usc/26/1313.md?p=b) at the close of the [merchandise return period](#b-7-A), and
    - (B) is satisfactory to the [Secretary](/usc/26/7701.md?p=a-11-B).
  - (9) **Repurchase by the taxpayer not treated as resale—** A repurchase by the [taxpayer](/usc/26/1313.md?p=b) shall be treated as an adjustment of the sales price rather than as a resale.
- (c) **Qualified sales to which section applies—**
  - (1) **Election of benefits—** This section shall apply to qualified sales of [magazines](#b-1), [paperbacks](#b-2), or [records](#b-3), as the case may be, if and only if the [taxpayer](/usc/26/1313.md?p=b) makes an election under this section with respect to the [trade or business](/usc/26/7701.md?p=a-26) in connection with which such sales are made. An election under this section may be made without the consent of the [Secretary](/usc/26/7701.md?p=a-11-B). The election shall be made in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe and shall be made for any [taxable year](/usc/26/441.md?p=b) not later than the time prescribed by law for filing the [return](/usc/26/6103.md?p=b-1) for such [taxable year](/usc/26/441.md?p=b) ([including](/usc/26/7701.md?p=c) extensions thereof).
  - (2) **Scope of election—** An election made under this section shall apply to all qualified sales of [magazines](#b-1), [paperbacks](#b-2), or [records](#b-3), as the case may be, made in connection with the [trade or business](/usc/26/7701.md?p=a-26) with respect to which the [taxpayer](/usc/26/1313.md?p=b) has made the election.
  - (3) **Period to which election applies—** An election under this section shall be effective for the [taxable year](/usc/26/441.md?p=b) for which it is made and for all subsequent [taxable years](/usc/26/441.md?p=b), unless the [taxpayer](/usc/26/1313.md?p=b) secures the consent of the [Secretary](/usc/26/7701.md?p=a-11-B) to the revocation of such election.
  - (4) **Treatment as method of accounting—** Except to the extent inconsistent with the provisions of this section, for purposes of this subtitle, the computation of [taxable income](/usc/26/63.md?p=b) under an election made under this section shall be treated as a method of accounting.
- (d) **5-year spread of transitional adjustments for magazines—** In applying [section 481(c)](/usc/26/481.md?p=c) with respect to any election under this section which applies to [magazines](#b-1), the period for taking into account any decrease in [taxable income](/usc/26/63.md?p=b) resulting from the application of [section 481(a)(2)](/usc/26/481.md?p=a-2) shall be the [taxable year](/usc/26/441.md?p=b) for which the election is made and the 4 succeeding [taxable years](/usc/26/441.md?p=b).
- (e) **Suspense account for paperbacks and records—**
  - (1) **In general—** In the case of any election under this section which applies to [paperbacks](#b-2) or [records](#b-3), in lieu of applying [section 481](/usc/26/481.md), the [taxpayer](/usc/26/1313.md?p=b) shall establish a suspense account for the [trade or business](/usc/26/7701.md?p=a-26) for the [taxable year](/usc/26/441.md?p=b) for which the election is made.
  - (2) **Initial opening balance—** The opening balance of the account described in [paragraph (1)](#e-1) for the first [taxable year](/usc/26/441.md?p=b) 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](/usc/26/441.md?p=b) if this section had applied to such preceding 3 [taxable years](/usc/26/441.md?p=b). This paragraph and [paragraph (3)](#e-3) shall be applied by taking into account only amounts attributable to the [trade or business](/usc/26/7701.md?p=a-26) for which such account is established.
  - (3) **Adjustments in suspense account—** At the close of each [taxable year](/usc/26/441.md?p=b) the suspense account shall be—
    - (A) reduced the excess (if any) of—
      - (i) the opening balance of the suspense account for the [taxable year](/usc/26/441.md?p=b), over
      - (ii) the amount excluded from gross income for the [taxable year](/usc/26/441.md?p=b) under [subsection (a)](#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](/usc/26/441.md?p=b) under [subsection (a)](#a), over
      - (ii) the opening balance of the account for the [taxable year](/usc/26/441.md?p=b).
  - (4) **Gross income adjustments—**
    - (A) **Reductions excluded from gross income—** In the case of any reduction under [paragraph (3)(A)](#e-3-A) in the account for the [taxable year](/usc/26/441.md?p=b), an amount equal to such reduction shall be excluded from gross income for such [taxable year](/usc/26/441.md?p=b).
    - (B) **Increases added to gross income—** In the case of any increase under [paragraph (3)(B)](#e-3-B) in the account for the [taxable year](/usc/26/441.md?p=b), an amount equal to such increase shall be included in gross income for such [taxable year](/usc/26/441.md?p=b).

    If the initial opening balance exceeds the dollar amount of returned merchandise which would have been taken into account under [subsection (a)](#a) for the [taxable year](/usc/26/441.md?p=b) preceding the first [taxable year](/usc/26/441.md?p=b) for which the election is effective if this section had applied to such preceding [taxable year](/usc/26/441.md?p=b), then an amount equal to the amount of such excess shall be included in gross income for such first [taxable year](/usc/26/441.md?p=b).

  - (5) **Subchapter C transactions—** The application of this subsection with respect to a [taxpayer](/usc/26/1313.md?p=b) 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](/usc/26/7701.md?p=a-11-B).

## Source credit

(Added Pub. L. 95–600, title III, § 372(a), Nov. 6, 1978, 92 Stat. 2860; amended Pub. L. 115–141, div. U, title IV, § 401(a)(114), (115), Mar. 23, 2018, 132 Stat. 1189.)

## Notes

### 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.”