U.S. Code » Title 26 » Subtitle Subtitle A— Income Taxes › Chapter CHAPTER 1— NORMAL TAXES AND SURTAXES › Subchapter Subchapter E— Accounting Periods and Methods of Accounting › Part PART II— METHODS OF ACCOUNTING › Subpart Subpart A— Methods of Accounting in General

26 U.S.C. § 446

General rule for methods of accounting

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(a) General rule

Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.

(b) Exceptions

If no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary, does clearly reflect income.

(c) Permissible methodsSubject to the provisions of subsections (a) and (b), a taxpayer may compute taxable income under any of the following methods of accounting—(1) the cash receipts and disbursements method;(2) an accrual method;(3) any other method permitted by this chapter; or(4) any combination of the foregoing methods permitted under regulations prescribed by the Secretary.(d) Taxpayer engaged in more than one business

A taxpayer engaged in more than one trade or business may, in computing taxable income, use a different method of accounting for each trade or business.

(e) Requirement respecting change of accounting method

Except as otherwise expressly provided in this chapter, a taxpayer who changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.

(f) Failure to request change of method of accountingIf the taxpayer does not file with the Secretary a request to change the method of accounting, the absence of the consent of the Secretary to a change in the method of accounting shall not be taken into account—(1) to prevent the imposition of any penalty, or the addition of any amount to tax, under this title, or(2) to diminish the amount of such penalty or addition to tax.(Aug. 16, 1954, ch. 736, 68A Stat. 151; Pub. L. 94–455, title XIX, § 1906 (b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–369, div. A, title I, § 161(a), July 18, 1984, 98 Stat. 696.)Editorial NotesAmendments

1984—Subsec. (f). Pub. L. 98–369 added subsec. (f).

1976—Subsecs. (b), (c), (e). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related SubsidiariesEffective Date of 1984 Amendment

Pub. L. 98–369, div. A, title I, § 161(b), July 18, 1984, 98 Stat. 697, provided that: “The amendment made by this section [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [July 18, 1984].”

Notes of Decisions
Cited in 190 cases (1 in the last 5 years), 1958–2025 · leading case: JPMorgan Chase & Co. v. Comm'r, 458 F.3d 564 (7th Cir. 2006).
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JPMorgan Chase & Co. v. Comm'r, 458 F.3d 564 (7th Cir. 2006). · cites it 5× “” 26 U.S.C. § 446 (a). The Code then offers an exception: “[i]f no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, then the computation of taxable income shall be made under such method as, in the opinion of…”
Thor Power Tool Co. v. Comm'r, 439 U.S. 522 (1979). · cites it 3× “The court held, however, that conformance with “generally accepted accounting principles” is not enough; § 446 (b), and § 471 as well, of the 1954 Code, 26 U. S. C. §§ 446 (b) and 471, prescribe, as an independent requirement, that inventory accounting methods must “clearly…”
Shea Homes, Inc. v. Comm'r, 834 F.3d 1061 (9th Cir. 2016). · cites it 7× “; see also 26 U.S.C. § 446 (b). In the event that the Commissioner issues a deficiency notice (or a final partnership administrative adjustment), as he did here, a taxpayer may petition the Tax Court for a redetermination,10 as the Taxpayers did here.”
Diebold, Inc. v. United States, 16 Cl. Ct. 193 (Ct. Cl. 1989). · cites it 8× “Internal Revenue Code, 26 U.S.C. § 446 (e) (1982 & Supp. IV 1986).”
Asphalt Prods. Co. v. Comm'r, 796 F.2d 843 (6th Cir. 1986). · cites it 6× “26 U.S.C. § 446 (1982). Treasury Regulations follow the statute and permit a taxpayer to compute taxable income under either the cash or accrual method and require that taxable income be computed on the basis of the same method of accounting regularly used in keeping the…”
United States v. Fior D'Italia, Inc., 536 U.S. 238 (2002). · cites it 2× “" We simply do not see how this kind of language, taken as a whole, argues against use of an aggregate estimation method that seeks to determine the restaurant's total FICA tax liability.”
Anderson-Clayton Bros. Funeral Home v. Strayhorn, 149 S.W.3d 166 (Tex. App.—Austin 2004). · cites it 4× “26 U.S.C.A. § 446 (c). Under cash accounting, income is recognized only upon the actual receipt of cash, property or services.”
Bruce A. & Marianne S. Prabel v. Comm'r, 882 F.2d 820 (3d Cir. 1989). · cites it 4× “The Tax Court found that the Commissioner did not abuse his discretion under 26 U.S.C. § 446 (b) and upheld the deficiency.”
Ford Motor Co. v. Comm'r, 71 F.3d 209 (6th Cir. 1996). · cites it 5× “On appeal, the issue is whether respondent Commissioner abused her discretion in determining that petitioner’s method of accounting for its structured settlements was not a clear reflection of income under 26 U.S.C. § 446 (b) 1 and in ordering petitioner to limit its deduction…”
Am. Auto. Assn. v. United States, 367 U.S. 687 (1961). · cites it 4× “Court of Claims: "Had the plaintiff recognized, assigned and transferred to its gross income account its monthly receipts of dues collected in advance in the proportion to its cost of servicing all of its members each month, instead of ratably over the membership period of 12…”
Giant Eagle Inc v. Comm'r IRS, 822 F.3d 666 (3d Cir. 2016). · cites it 4× “So long as a taxpayer consistently adheres to one accounting method, the Code is agnostic as to the benefit or hardship wrought by his selection.”
Anderson v. United States Sec'y of Agric., 462 F. Supp. 2d 1333 (Ct. Intl. Trade 2006). · cites it 4× “7 26 U.S.C. § 446 (c). 8 In plain terms, [t]he accrual method, as distinguished from the cash receipts and disbursements method of accounting, reports revenues when they are earned even though no cash may have been received and reports expenses when they have been incurred even…”
Show all 190 citing cases →
26 U.S.C. § 446(b): 1 case
Anthony Agnellino v. Comm'r, 302 F.2d 797 (3d Cir. 1962).
26 U.S.C. § 446(c): 2 cases
Anderson-Clayton Bros. Funeral Home v. Strayhorn, 149 S.W.3d 166 (Tex. App.—Austin 2004). “26 U.S.C.A. § 446 (c). Under cash accounting, income is recognized only upon the actual receipt of cash, property or services.”
Anderson-Clayton Bros. Funeral Home v. Carole Keeton Strayhorn, No. 03-03-00458-CV (Tex. App.—Austin Aug. 12, 2004).
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