26 U.S.C. § 451: General rule for taxable year of inclusion

The amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different period. an applicable financial statement of the taxpayer, or such other financial statement as the Secretary may specify for purposes of this subsection. a taxpayer which does not have a financial statement described in clause (i) or (ii) of subparagraph (A) for a taxable year, or any item of gross income in connection with a mortgage servicing contract. For purposes of this section, the all events test is met with respect to any item of gross income if all the events have occurred which fix the right to receive such income and the amount of such income can be determined with reasonable accuracy. Paragraph (1) shall not apply with respect to any item of gross income for which the taxpayer uses a special method of accounting provided under any other provision of this chapter, other than any provision of part V of subchapter P (except as provided in clause (ii) of paragraph (1)(B)). a 10–K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission, credit purposes, reporting to shareholders, partners, or other proprietors, or to beneficiaries, or any other substantial nontax purpose, filed by the taxpayer with any other Federal agency for purposes other than Federal tax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), a financial statement which is made on the basis of international financial reporting standards and is filed by the taxpayer with an agency of a foreign government which is equivalent to the United States Securities and Exchange Commission and which has reporting standards not less stringent than the standards required by such Commission, but only if there is no statement of the taxpayer described in subparagraph (A), or a financial statement filed by the taxpayer with any other regulatory or governmental body specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A) or (B). For purposes of this subsection, in the case of a contract which contains multiple performance obligations, the allocation of the transaction price to each performance obligation shall be equal to the amount allocated to each performance obligation for purposes of including such item in revenue in the applicable financial statement of the taxpayer. For purposes of paragraph (1), if the financial results of a taxpayer are reported on the applicable financial statement (as defined in paragraph (3)) for a group of entities, such statement shall be treated as the applicable financial statement of the taxpayer. except as provided in subparagraph (B), include such advance payment in gross income for such taxable year, or to the extent that any portion of such advance payment is required under subsection (b) to be included in gross income in the taxable year in which such payment is received, so include such portion, and include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received. Except as otherwise provided in this paragraph, the election under paragraph (1)(B) shall be made at such time, in such form and manner, and with respect to such categories of advance payments, as the Secretary may provide. An election under paragraph (1)(B) 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 revoke such election. For purposes of this title, the computation of taxable income under an election made under paragraph (1)(B) shall be treated as a method of accounting. Except as otherwise provided by the Secretary, the election under paragraph (1)(B) shall not apply with respect to advance payments received by the taxpayer during a taxable year if such taxpayer ceases to exist during (or with the close of) such taxable year. the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), any portion of which is included in revenue by the taxpayer in a financial statement described in clause (i) or (ii) of subsection (b)(1)(A) for a subsequent taxable year, and which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause. rent, insurance premiums governed by subchapter L, payments with respect to financial instruments, payments with respect to warranty or guarantee contracts under which a third party is the primary obligor, payments subject to section 871(a), 881, 1441, or 1442, payments in property to which section 83 applies, and any other payment identified by the Secretary for purposes of this subparagraph. For purposes of this subsection, an item of gross income is received by the taxpayer if it is actually or constructively received, or if it is due and payable to the taxpayer. For purposes of this subsection, rules similar to subsection (b)(4) shall apply. In the case of the death of a taxpayer whose taxable income is computed under an accrual method of accounting, any amount accrued only by reason of the death of the taxpayer shall not be included in computing taxable income for the period in which falls the date of the taxpayer’s death. For purposes of subsection (a), tips included in a written statement furnished an employer by an employee pursuant to section 6053(a) shall be deemed to be received at the time the written statement including such tips is furnished to the employer. In the case of insurance proceeds received as a result of destruction or damage to crops, a taxpayer reporting on the cash receipts and disbursements method of accounting may elect to include such proceeds in income for the taxable year following the taxable year of destruction or damage, if he establishes that, under his practice, income from such crops would have been reported in a following taxable year. For purposes of the preceding sentence, payments received under the Agricultural Act of 1949, as amended, or title II of the Disaster Assistance Act of 1988, as a result of (1) destruction or damage to crops caused by drought, flood, or any other natural disaster, or (2) the inability to plant crops because of such a natural disaster shall be treated as insurance proceeds received as a result of destruction or damage to crops. An election under this subsection for any taxable year shall be made at such time and in such manner as the Secretary prescribes. In the case of income derived from the sale or exchange of livestock in excess of the number the taxpayer would sell if he followed his usual business practices, a taxpayer reporting on the cash receipts and disbursements method of accounting may elect to include such income for the taxable year following the taxable year in which such sale or exchange occurs if he establishes that, under his usual business practices, the sale or exchange would not have occurred in the taxable year in which it occurred if it were not for drought, flood, or other weather-related conditions, and that such conditions had resulted in the area being designated as eligible for assistance by the Federal Government. Paragraph (1) shall apply only to a taxpayer whose principal trade or business is farming (within the meaning of section 6420(c)(3)). If section 1033(e)(2) applies to a sale or exchange of livestock described in paragraph (1), the election under paragraph (1) shall be deemed valid if made during the replacement period described in such section. In the case of a taxpayer the taxable income of which is computed under an accrual method of accounting, any income attributable to the sale or furnishing of utility services to customers shall be included in gross income not later than the taxable year in which such services are provided to such customers. the providing of electrical energy, water, or sewage disposal, the furnishing of gas or steam through a local distribution system, telephone or other communication services, and the transporting of gas or steam by pipeline. the period in which the customers’ meters are read, or the period in which the taxpayer bills (or may bill) the customers for such service. the net amount withdrawn by such individual from such deposit during such calendar year, and the amount of such deposit which is withdrawable as of the close of the taxable year (determined without regard to any penalty for premature withdrawals of a time deposit). Any interest not included in gross income by reason of paragraph (1) shall be treated as credited in the next calendar year. No deduction shall be allowed to any qualified financial institution for interest not includible in gross income under paragraph (1) until such interest is includible in gross income. the bankruptcy or insolvency of the qualified financial institution (or threat thereof), or any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in the State. For purposes of this subsection, the terms “qualified individual”, “qualified financial institution”, and “deposit” have the same respective meanings as when used in section 165( l ). For purposes of this title, in the case of an individual on the cash receipts and disbursements method of accounting, a qualified prize option shall be disregarded in determining the taxable year for which any portion of the qualified prize is properly includible in gross income of the taxpayer. entitles an individual to receive a single cash payment in lieu of receiving a qualified prize (or remaining portion thereof), and is exercisable not later than 60 days after such individual becomes entitled to the qualified prize. is awarded as a part of a contest, lottery, jackpot, game, or other similar arrangement, does not relate to any past services performed by the recipient and does not require the recipient to perform any substantial future service, and is payable over a period of at least 10 years. The Secretary shall provide for the application of this subsection in the case of a partnership or other pass-through entity consisting entirely of individuals described in paragraph (1). the cost of exempt utility property which is purchased by the taxpayer during the 4-year period beginning on such date, reduced (but not below zero) by any portion of such cost previously taken into account under this subsection, and ratably over the 8-taxable year period beginning with the taxable year which includes the date of such transaction, in the case of any such gain not recognized under subparagraph (A). any ordinary income derived from such transaction which would be required to be recognized under section 1245 or 1250 for such taxable year (determined without regard to this subsection), and any income derived from such transaction in excess of the amount described in subparagraph (A) which is required to be included in gross income for such taxable year (determined without regard to this subsection). property used in the trade or business of providing electric transmission services, or any stock or partnership interest in a corporation or partnership, as the case may be, whose principal trade or business consists of providing electric transmission services, an independent transmission provider approved by the Federal Energy Regulatory Commission, who the Federal Energy Regulatory Commission determines in its authorization of the transaction under section 203 of the Federal Power Act ( 16 U.S.C. 824b ) or by declaratory order is not a market participant within the meaning of such Commission’s rules applicable to independent transmission providers, and whose transmission facilities to which the election under this subsection applies are under the operational control of a Federal Energy Regulatory Commission-approved independent transmission provider before the close of the period specified in such authorization, but not later than the date which is 4 years after the close of the taxable year in which the transaction occurs, or a person which is approved by that Commission as consistent with Texas State law regarding an independent transmission provider, or a political subdivision or affiliate thereof whose transmission facilities are under the operational control of a person described in clause (i). generating, transmitting, distributing, or selling electricity, or producing, transmitting, distributing, or selling natural gas. Acquisition of control of a corporation shall be taken into account under this subsection with respect to a qualifying electric transmission transaction only if the principal trade or business of such corporation is a trade or business referred to in subparagraph (A). The term “exempt utility property” shall not include any property which is located outside the United States. a transmitting utility (as defined in section 3(23) of the Federal Power Act ( 16 U.S.C. 796(23) )) with respect to the transmission facilities to which the election under this subsection applies, and an electric utility (as defined in section 3(22) of the Federal Power Act ( 16 U.S.C. 796(22) )). In the case of a corporation which is a member of an affiliated group filing a consolidated return, any exempt utility property purchased by another member of such group shall be treated as purchased by such corporation for purposes of applying paragraph (1)(A). the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on the transaction is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of the purchase of exempt utility property or of an intention not to purchase such property, and such deficiency may be assessed before the expiration of such 3-year period notwithstanding any law or rule of law which would otherwise prevent such assessment. For purposes of this subsection, the taxpayer shall be considered to have purchased any property if the unadjusted basis of such property is its cost within the meaning of section 1012. An election under paragraph (1) shall be made at such time and in such manner as the Secretary may require and, once made, shall be irrevocable. Section 453 shall not apply to any qualifying electric transmission transaction with respect to which an election to apply this subsection is made. The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017 . such change shall be treated as initiated by the taxpayer, and such change shall be treated as made with the consent of the Secretary of the Treasury. is required by the amendments made by this section, or was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments. the amendments made by this section shall apply to taxable years beginning after December 31, 2018 , and the period for taking into account any adjustments under section 481 by reason of a qualified change in method of accounting (as defined in subsection (d)) shall be 6 years.” The amendment made by subsection (a) [amending this section] shall apply to transactions occurring after the date of the enactment of this Act [ Aug. 8, 2005 ]. The amendment made by subsection (b) [amending this section] shall take effect as if included in the amendments made by section 909 of the American Jobs Creation Act of 2004 [ Pub. L. 108–357 , amending this section].” The amendments made by subsection (a) [amending this section] shall apply to transactions after December 31, 2007 . The amendment made by subsection (b) [amending this section] shall take effect as if included in section 909 of the American Jobs Creation Act of 2004 [ Pub. L. 108–357 ]. The amendment made by subsection (c) [amending this section] shall apply to transactions after the date of the enactment of this Act [ Oct. 3, 2008 ].” The amendment made by this section [amending this section] shall apply to any prize to which a person first becomes entitled after the date of enactment of this Act [ Oct. 21, 1998 ]. clause (ii) of such section 451(h)(2)(A) [now 451(j)(2)(A)] shall not apply, and such option shall be treated as a qualified prize option if it is exercisable only during all or part of the 18-month period beginning on July 1, 1999 .” The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 1986 . such change shall be treated as initiated by the taxpayer, such change shall be treated as having been made with the consent of the Secretary, and the adjustments under section 481 of the Internal Revenue Code of 1954 [now 1986] by reason of such change shall be taken into account ratably over a period no longer than the first 4 taxable years beginning after December 31, 1986 . If a taxpayer for any taxable year beginning before August 16, 1986 , for purposes of chapter 1 of the Internal Revenue Code of 1986 took into account income from services described in section 451(f) [now 451(h)] of such Code (as added by subsection (a)) on the basis of the period in which the customers’ meters were read, then such treatment for such year shall be deemed to be proper. The preceding sentence shall also apply to any taxable year beginning after August 16, 1986 , and before January 1, 1987 , if the taxpayer treated such income in the same manner for the taxable year preceding such taxable year.” The amendment made by subsection (a) [amending section 165 of this title ] shall apply to taxable years beginning after December 31, 1981 , and, except as provided in paragraph (2), the amendment made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 1982 . The amendment made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 1982 , and before January 1, 1987 , only if the qualified individual elects to have such amendment apply for all such taxable years. In the case of interest attributable to the period beginning January 1, 1983 , and ending December 31, 1987 , the interest deduction of financial institutions shall be determined without regard to paragraph (3) of section 451(f) [now 451(h)] of the Internal Revenue Code of 1986 (as added by subsection (b)).” clarify the time at which a contract is to be considered completed, one agreement will be treated as more than one contract, and two or more agreements will be treated as one contract, and properly allocate all costs which directly benefit, or are incurred by reason of, the extended period long-term contract activities of the taxpayer. The term ‘extended period long-term contract’ means any long-term contract which the taxpayer estimates (at the time such contract is entered into) will not be completed within the 2-year period beginning on the contract commencement date of such contract. who estimates (at the time such contract is entered into) that such contract will be completed within the 3-year period beginning on the contract commencement date of such contract, or whose average annual gross receipts over the 3 taxable years preceding the taxable year in which such contract is entered into do not exceed $25,000,000. all trades or businesses (whether or not incorporated) which are under common control with the taxpayer (within the meaning of section 52(b)), and all members of any controlled group of corporations of which the taxpayer is a member, ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)(1), and the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. The term ‘construction contract’ means any contract for the building, construction, reconstruction, or rehabilitation of, or the installation of any integral component to, improvements to real property. The term ‘contract commencement date’ means, with respect to any contract, the first date on which any costs (other than costs such as bidding expenses or expenses incurred in connection with negotiating the contract) allocable to such contract are incurred. The modifications to regulations which are required to be made under paragraphs (1) and (2) of subsection (a) shall apply with respect to taxable years ending after December 31, 1982 . Any modification to Income Tax Regulation 1.451–3 made under subsection (a)(3) which requires additional costs to be allocated to a contract shall apply only to the applicable percentage of such additional costs incurred in taxable years beginning after December 31, 1982 , with respect to contracts entered into after such date. For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table: “If the taxable year begins in calendar year: The applicable percentage is: 1983 33⅓ 1984 66⅔ 1985 or thereafter 100. Any contract of a taxpayer which would (but for this paragraph) be treated as having been completed prior to the first taxable year of such taxpayer ending after December 31, 1982 , solely by reason of any modification to regulations made under subsection (a)(1), shall be treated as having been completed on the first day of such taxable year. solely by reason of any modification to regulations made under subsection (a)(2), or solely by reason of any modifications to regulations made under both paragraphs (1) and (2) of subsection (a), To the extent provided in regulations, no addition to tax shall be made under section 6654 or 6655 of the Internal Revenue Code of 1954 for the taxpayer’s first taxable year ending after December 31, 1982 , by reason of a long-term contract, but only with respect to installments required to be paid before April 13, 1983 .” The taxable year of inclusion in gross income of any amount covered by a private deferred compensation plan shall be determined in accordance with the principles set forth in regulations, rulings, and judicial decisions relating to deferred compensation which were in effect on February 1, 1978 . where the person for whom the service is performed is not a State (within the meaning of paragraph (1) of section 457(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) and not an organization which is exempt from tax under section 501 of such Code, and under which the payment or otherwise making available of compensation is deferred. a plan described in section 401(a) of the Internal Revenue Code of 1986 which includes a trust, exempt from tax under section 501(a) of such Code, an annuity plan or contract described in section 403 of such Code, a qualified bond purchase plan described in section 405(a) of such Code, that portion of any plan which consists of a transfer of property described in section 83 (determined without regard to subsection (e) thereof of such Code, and that portion of any plan which consists of a trust to which section 402(b) of such Code applies. This section shall apply to taxable years ending on or after February 1, 1978 .” the destruction or damage to crops caused by drought, flood, or any other natural disaster, or the inability to plant crops because of such a natural disaster, and the taxpayer establishes that, under his practice, income from such crops could have been reported for his last taxable year beginning in 1977, or the taxpayer receives in his first taxable year beginning in 1978 deficiency (or ‘target price’) payments under the Agricultural Act of 1949, as amended, for any 1977 crop, and the fifth month of such crop’s marketing year ends before December 1, 1977 , An election under this section for any taxable year shall be made at such time and in such manner as the Secretary of the Treasury may by regulations prescribe and shall apply with respect to all proceeds described in subsection (a) which were received by the taxpayer.”