[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.455-2]

[Page 135-136]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.455-2  Scope of election under section 455.

    (a) If a taxpayer makes an election under section 455 and 
Sec. 1.455-6 with respect to a trade or business, all prepaid 
subscription income from such trade or business shall be included in 
gross income for the taxable years during which the liability exists to 
furnish or deliver a newspaper, magazine, or other periodical. Such 
election shall be applicable to all prepaid subscription income received 
in connection with the trade or business for which the election is made; 
except that the taxpayer may further elect to include in gross income 
for the taxable year of receipt (as described in section 455(d)(3) and 
paragraph (c) of Sec. 1.455-5) 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, hereinafter sometimes 
referred to as ``within 12 months'' election.
    (b) If the taxpayer is engaged in more than one trade or business in 
which a liability is incurred to furnish or deliver a newspaper, 
magazine, or other periodical, a separate election 455 with respect to 
each such trade or business. In addition, a taxpayer may make a separate 
``within 12 months'' election for each separate trade or business for 
which it has made an election under section 455.
    (c) An election made under section 455 shall be binding for the 
first taxable year for which the election is made and for all subsequent 
taxable years, unless the taxpayer secures the consent of the 
Commissioner to the revocation of such election. Thus, in any case where 
the taxpayer has elected a method prescribed by section 455 for the 
inclusion of prepaid subscription income in gross income, such method of 
reporting income may not be changed without the prior approval of the 
Commissioner. In order to secure the Commissioner's consent to the 
revocation of such election, an application must be filed with the 
Commissioner in accordance with section 446(e) and the regulations 
thereunder. For purposes of subtitle A of the Code, the computation of 
taxable income under an election made under section 455 shall be treated 
as a method of accounting. For adjustments required by changes in method 
of accounting, see section 481 and the regulations thereunder.
    (d) An election made under section 455 shall not apply to any 
prepaid subscription income received before the first taxable year to 
which the election applies. For example, Corporation M, which computes 
its taxable income under an accrual method of accounting and files its 
income tax returns on the calendar year basis, publishes a monthly 
magazine and customarily sells subscriptions on a 3-year basis. In 1958 
it received $135,000 of 3-year prepaid subscription income for 
subscriptions beginning during 1958, and in 1959 it received $142,000 of 
prepaid subscription income for subscriptions beginning after December 
31, 1958. In February 1959 it elected, with the consent of the 
Commissioner, to report its prepaid subscription income under the 
provisions of section 455 for the year 1959 and subsequent taxable 
years. The

[[Page 136]]

$135,000 received in 1958 from prepaid subscriptions must be included in 
gross income in full in that year, and no part of such 1958 income shall 
be allocated to the years 1959, 1960, and 1961 during which M was under 
a liability to deliver its magazine. The $142,000 received in 1959 from 
prepaid subscriptions shall be allocated to the years 1959, 1960, 1961, 
and 1962.
    (e) No election may be made under section 455 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. However, if the taxpayer is on a ``combination'' method of 
accounting under section 446(c)(4) and the regulations thereunder, it 
may elect the benefits of section 455 if it uses an accrual method of 
accounting for subscription income

[T.D. 6591, 27 FR 1798, Feb. 27, 1962]