I.R.C. § 456(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.
I.R.C. § 456(b) Where Taxpayer's Liability Ceases —
In the case of any prepaid dues income to which this section applies—
I.R.C. § 456(b)(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.
I.R.C. § 456(b)(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.
I.R.C. § 456(c) Prepaid Dues Income To Which This Section Applies
I.R.C. § 456(c)(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 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.
I.R.C. § 456(c)(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, 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),
and 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.
I.R.C. § 456(c)(3) When Election May Be Made
I.R.C. § 456(c)(3)(A) With Consent —
A taxpayer may, with the consent of the Secretary, make an election under this section
at any time.
I.R.C. § 456(c)(3)(B) Without Consent —
A taxpayer may, without the consent of the Secretary, make an election under this
section for its first taxable year 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.
I.R.C. § 456(c)(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 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.
I.R.C. § 456(d) Transitional Rule
I.R.C. § 456(d)(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.
I.R.C. § 456(d)(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.
I.R.C. § 456(e) Definitions —
For purposes of this section—
I.R.C. § 456(e)(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.
I.R.C. § 456(e)(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.
I.R.C. § 456(e)(3) Membership Organization —
The term “membership organization” means a corporation, association, federation,
or other organization—
I.R.C. § 456(e)(3)(A) —
organized without capital stock of any kind, and
I.R.C. § 456(e)(3)(B) —
no part of the net earnings of which is distributable to any member.
I.R.C. § 456(e)(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).
(Added Pub. L. 87-109, 1(a), July 26, 1961, 75 Stat. 222, and amended Pub. L. 94-455, title XIX, 1901(a)(68), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)
BACKGROUND NOTES
AMENDMENTS
1976--Subsec. (c). Pub. L. 94-455, 1906(b)(13)(A), struck out
“or his delegate” after “Secretary” wherever appearing.
Subsec. (c)(3)(B). Pub. L. 94-455, 1901(a)(68), substituted “for its first taxable year” for “for its first taxable
year (i) which begins after December 31, 1960, and (ii)”.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(68) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 2 of Pub. L. 87-109 provided that: “The amendments made by this Act [enacting this section] shall apply
with respect to taxable years beginning after December 31, 1960.”
