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SEC. 455 (added 1958) Continued

tary or his delegate, include in gross income for the taxable year
of receipt the entire amount of any prepaid subscription income
if the liability from which it arose is to end within 12 months
after the date of receipt. An election made under this section
shall not apply to any prepaid subscription income received
before the first taxable year for which the election is made.
(3) WHEN ELECTION MAY BE MADE.-

(A) WITH CONSENT.-A taxpayer may, with the consent of the Secretary or his delegate, make an election under this section at any time.

“(B) WITHOUT CONSENT.-A taxpayer may, without the consent of the Secretary or his delegate, make an election under this section for his first taxable year (i) which begins after December 31, 1957, and (ii) in which he receives prepaid subscription income in the trade or business. Such election shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof) with respect to which such election is made.

(4) PERIOD TO WHICH ELECTION APPLIES.–An election under this section shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary or his delegate to the revocation of such election. For purposes of this title, the computation of taxable income under an election made under this section shall be treated as a method of accounting. “(d) DEFINITIONS.—For purposes of this section

"(1) PREPAID SUBSCRIPTION INCOME.—The term 'prepaid subscription income' means any amount (includible in gross income) which is received in connection with, and is directly attributable to, a liability which extends beyond the close of the taxable year in which such amount is received, and which is income from a subscription to a newspaper, magazine, or other periodical.

"(2) LIABILITY.—The term liability' means a liability to furnish or deliver a newspaper, magazine, or other periodical.

"(3) RECEIPT OF PREPAID SUBSCRIPTION INCOME.—Prepaid subscription income shall be treated as received during the taxable year for which it is includible in gross income under section 451 (without regard to this section).

(e) DEFERRAL OF INCOME UNDER ESTABLISHED ACCOUNTING PROCEDURES.-Notwithstanding the provisions of this section, any taxpayer who has, for taxable years prior to the first taxable year to which this section applies, reported his income under an established and consistent method or practice of accounting for prepaid subscription income (to which this section would apply if an election were made) may continue to report his income for taxable years to which

this title applies in accordance with such method or practice."
Applicability:
Taxable years beginning after December 31, 1957.

(Id., $ 28(c), 72 Stat. 1626.)

SEC. 456. PREPAID DUES INCOME OF CERTAIN MEMBERSHIP

ORGANIZATIONS (Added 1961–75 Stat. 222–223): Added.--- July 26, 1961, H.R. 929, P.L. 87-109, $ 1(a), 75 Stat. 222-223:

Amended Subpart B of Part II of Subchapter E of Chapter 1 by adding at the end thereof, after section 455 (as added by P.L. 85–866, § 28(a)) the following new section 456: “SEC. 456. PREPAID DUES INCOME OF CERTAIN MEMBERSHIP

ORGANIZATIONS. "(a) YEAR IN Which INCLUDED.-Prepaid dues income to which this section applies shall be included in gross income for the taxable years during which the liability described in subsection (e) (2) exists.

"(b) WHERE TAXPAYER'S LIABILITY CEASES.-In the case of any prepaid dues income to which this section applies

“(1) If the liability described in subsection (e)(2) ends, then so much of such income as was not includible in gross income under subsection (a) for preceding taxable years shall be included in gross income for the taxable year in which the liability ends.

"(2) If the taxpayer ceases to exist, then so much of such income as was not includible in gross income under subsection (a) for preceding taxable years shall be included in gross income for the taxable year in which such cessation of existence occurs. "(c) PREPAID DUES INCOME TO WHICH THIS SECTION APPLIES

"(1) ELECTION OF BENEFITS.-This section shall apply to prepaid dues income if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such income is received. The election shall be made in such manner as the Secretary or his delegate may by regulations prescribe. No election may be made with respect to a trade or business if in computing taxable income the cash receipts and disbursements method of accounting is used with respect to such trade or business.

(2) SCOPE OF ELECTION.-An election made under this section shall apply to all prepaid dues income received in connection with the trade or business with respect to which the taxpayer has made the election; except that the taxpayer may, to the extent permitted under regulations prescribed by the Secretary or his delegate, include in gross income for the taxable year of receipt the entire amount of any prepaid dues income if the liability from which it arose is to end within 12 months after the date of receipt. Except as provided in subsection (d), an election made under this section shall not apply to any prepaid dues income received before the first taxable year for which the election is made. “(3) WHEN ELECTION MAY BE MADE.

"(A) WITH CONSENT.-A taxpayer may, th the consent of the Secretary or his delegate, make an election under this section at any time.

"(B) WITHOUT CONSENT.–A taxpayer may, without the consent of the Secretary or his delegate, make an election under this section for its first taxable year (i) which begins after December 31, 1960, and (ii) in which it receives prepaid dues income in the trade or business. Such election shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof) with respect to which such election is made.

"(4) PERIOD TO WHICH ELECTION APPLIES.-An election under this section shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless

SEC. 456 (added 1961)-Continued

the taxpayer secures the consent of the Secretary or his delegate
to the revocation of such election. For purposes of this title, the
computation of taxable income under an election made under this
section shall be treated as a method of accounting.
"(d) TRANSITIONAL RULE.-

“(1) AMOUNT INCLUDIBLE IN GROSS INCOME FOR ELECTION YEARS.-If a taxpayer makes an election under this section with respect to prepaid dues income, such taxpayer shall include in gross income, for each taxable year to which such election applies, not only that portion of prepaid dues income received in such year otherwise includible in gross income for such year under this section, but shall also include in gross income for such year an additional amount equal to the amount of prepaid dues income received in the 3 taxable years preceding the first taxable year to which such election applies which would have been included in gross income in the taxable year had the election been effective 3 years earlier.

"(2) DEDUCTIONS OF AMOUNTS INCLUDED IN INCOME MORE THAN ONCE.-A taxpayer who makes an election with respect to prepaid dues income, and who includes in gross income for any taxable year to which the election applies an additional amount computed under paragraph (1), shall be permitted to deduct, for such taxable year and for each of the 4 succeeding taxable years, an amount equal to one-fifth of such additional amount, but only to the extent that such additional amount was also included in the taxpayer's gross income during any of the 3 taxable years preceding the first taxable year to which such election applies.

“(e) DEFINITIONS.—For purposes of this section

“(1) PREPAID DUES INCOME.-The term 'prepaid dues income' means any amount (includible in gross income) which is received by a membership organization in connection with, and is directly attributable to, a liability to render services or make available membership privileges over a period of time which extends beyond the close of the taxable year in which such amount is received.

"(2) LIABILITY.—The term liability' means a liability to render services or make available membership privileges over a period of time which does not exceed 36 months, which liability shall be deemed to exist ratably over the period of time that such services are required to be rendered, or that such membership privileges are required to be made available.

"(3) MEMBERSHIP ORGANIZATION.- The term 'membership organization' means a corporation, association, federation, or other organization

"(A) organized without capital stock of any kind, and

"(B) no part of the net earnings of which is distributable to any member.

"(4) RECEIPT OF PREPAID DUES INCOME.—Prepaid dues income shall be treated as received during the taxable year for which it is includible in gross income under section 451 (without regard

to this section).”
Applicability:
Taxable years beginning after December 31, 1960.

(Id., $ 2,75 Stat. 224.)

CH. 1, SUBCH. E, PART II, SUBPART C-TAXABLE YEAR FOR

WHICH DEDUCTIONS TAKEN (68A Stat. 157, ff.): Table --ad June 15, 1955, H.R. 4725, P.L. 84-74, § 2(3), 69 Stat. 135: (Sec. 462 Amended the table of sections for Subpart C of Part II of Substricken out) chapter E of Chapter 1 126 by striking out

"Sec. 462. Reserves for estimated expenses, etc." Applicability:

Taxable years beginning after December 31, 1953, and ending after August 16, 1954.

(Id., § 3, 69 Stat. 135.) SEC. 461. GENERAL RULE FOR TAXABLE YEAR OF DEDUCTION

(68A Stat. 157-158): (d)--- Sept. 14, 1960, H.R. 12536, P.L. 86–781, $ 6(a), 74 Stat. 1020–21: (added)

Amended Sec. 461 by adding at the end thereof, after subsection (c) (accrual of real property taxes), the following new subsection (d):

"(d) LIMITATION ON ACCELERATION OF ACCRUAL OF TAXES.

“(1) GENERAL RULE.- In the case of a taxpayer whose taxable income is computed under an accrual method of accounting, to the extent that the time for accruing taxes is earlier than it would be but for any action of any taxing jurisdiction taken after December 31, 1960, then, under regulations prescribed by the Secretary or his delegate, such taxes shall be treated as accruing at the time they would have accrued but for such action by such taxing jurisidiction.

“(2) LIMITATION.—Under regulations prescribed by the Secretary or his delegate, paragraph (1) shall be inapplicable to any item of tax to the extent that its application would (but for this paragraph) prevent all persons (including successors in interest)

from ever taking such item into account.'
Applicability:
Taxable years ending after December 31, 1960.

(Id., $ 6(b), 74 Stat. 1021.)
(e)---- Oct. 24, 1962, H.R. 6371, P.L. 87-876, § 3(a), 76 Stat. 1199:
(added)

Amended Sec. 461 (general rule for taxable year of deduction) by adding at the end thereof, after subsection (d) (as added by P.L. 86781, $ 6(a)), the following new subsection (e):

"(e) DIVIDENDS OR INTEREST PAID ON CERTAIN DEPOSITS OR WITHDRAWABLE ACCOUNTS.-Except as provided in regulations prescribed by the Secretary or his delegate, amounts paid to, or credited to the accounts of, depositors or holders of accounts as dividends or interest on their deposits or withdrawable accounts (if such amounts paid or credited are withdrawable on demand subject only to customary notice to withdraw) by a mutual savings bank not having capital stock represented by shares, a domestic building and loan association, or a cooperative bank shall not be allowed as a deduction for the taxable year to the extent such amounts are paid or credited for periods representing more than 12 months. Any such amount not allowed as a deduction as the result of the application of the preceding sentence shall be allowed as a deduction for such

126 The table of sections for Subpart C of Part II of Subchapter E of Chapter 1 originally read as follows (68A Stat. 157):

“Sec. 461. General rule for taxable year of deduction.
Sec. 462. Reserves for estimated expenses, etc.”

SEC. 461-Continued
(e) (added 1962)—Continued

other taxable year as the Secretary or his delegate determines to be

consistent with the preceding sentence.”
Applicability:
Only taxable years ending after December 31, 1962.

(id., $ 3(b), 76 Stat. 1199.)

Feb. 26, 1964, H.R. 8363, P.L. 88-272 $ 223(a)(1), 78 Stat. 76: (added)

Amended Sec. 461 by adding at the end thereof, after subsection (e) (as added by P.L. 87-876, § 3(a)), the following new subsection (f):

“(f) CONTESTED LIABILITIES.-If

"(1) the taxpayer contests an asserted liability,

(2) the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability,

"(3) the contest with respect to the asserted liability exists after the time of the transfer, and

"(4) but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer

(or for an earlier taxable year), then the deduction shall be allowed for the taxable year of the transfer. This subsection shall not apply in respect of the deduction for income, war profits, and excess profits taxes imposed by the au

thority of any foreign country or possession of the United States.” Applicability:

Taxable years beginning after December 31, 1963, "except as provided in subsections (c) and (d)”. 127

(Id., § 223(b)(1), 78 Stat. 76.)

127 Subsections (c) and (d) of section 223 of P.L. 88–272 provided as follows (78 Stat. 76–77): (c) ELECTION AS TO TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 1964.

"(1) The amendments made by subsection (a) shall not apply to any transfer of money or other property described in subsection (a) made in a taxable year beginning before January 1, 1964, if the taxpayer elects, in the manner provided by regulations prescribed by the Secretary of the Treasury or his delegate, to have this paragraph apply. Such an election

“(A) must be made within one year after the date of the enactment of this Act,
"(B) may not be revoked after the expiration of such one-year period, and

"C) shall apply to all transfers described in the first sentence of this paragraph (other than transfers described in paragraph (2)). In the case of any transfer to which this paragraph applies, the deduction shall be allowed only for the taxable year in which the contest with respect to such transfer is settled.

"(2) Paragraph (1) shall not apply to any transfer if the assessment of any deficiency which would result from the application of the election in respect of such transfer is, on the date of the election under paragraph (1), prevented by the operation of any law or rule of law.

"(3) If the taxpayer makes an election under paragraph (1), and if, on the date of such election, the assessment of any deficiency which results from the application of the election in respect of any transfer is not prevented by the operation of any law or rule of law, the period within which assessment of such deficiency may be made shall not expire earlier than 2 years after the date of the enactment of this Act.

"(d) CERTAIN OTHER TRANSFERS IN TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 1964.-The amendments made by subsection (a) shall not apply to any transfer of money or other property described in subsection (a) made in a taxable year beginning before January 1, 1964, if

"(1) no deduction has been allowed in respect of such transfer for any taxable year before the taxable year in which the contest with respect to such transfer is settled, and

"(2) refund or credit of any overpayment which would result from the application of such amendments to such transfer is prevented by the operation of any law or rule of law. In the case of any transfer to which this subsection applies, the deduction shall be allowed for the taxable year in which the contest with respect to such transfer is settled."

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