Internal Revenue Code · 26 U.S.C.
§ 481. Adjustments required by changes in method of accounting
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 481
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- September 2, 1958 by Pub. L. 85–866
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 5 dated changes in the source credit
- Length
- 4 subsections · 892 words · about 4 min to read
- Defines
- 1 term
- Cross-references
- cites 4; cited by 13 Code sections and 85 other regulations
- Regulations
- 6 issued under this section
In the case of any change described in subsection (a), the taxpayer may, in such manner and subject to such conditions as the Secretary may by regulations prescribe, take the adjustments required by subsection (a)(2) into account in computing the tax imposed by this chapter for the taxable year or years permitted under such regulations.
In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change.
(Aug. 16, 1954, ch. 736, 68A Stat. 160; Pub. L. 85–866, title I, § 29(a), (b), Sept. 2, 1958, 72 Stat. 1626–1628; Pub. L. 91–172, title V, § 512(f)(4), Dec. 30, 1969, 83 Stat. 641; Pub. L. 94–455, title XIX, §§ 1901(a)(70), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1776, 1834; Pub. L. 96–471, § 2(b)(3), Oct. 19, 1980, 94 Stat. 2254; Pub. L. 113–295, div. A, title II, § 221(a)(61), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, § 13543(a), Dec. 22, 2017, 131 Stat. 2155.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 481
- § 1.481-1 Adjustments in general.
- § 1.481-2 Limitation on tax.
- § 1.481-3 Adjustments attributable to pre-1954 years where change was not initiated by taxpayer.
- § 1.481-4 Adjustments taken into account with consent.
- § 1.481-5 Eligible terminated S corporation.
- § 1.481-6 Effective dates; applicability dates.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 4 other sections
- § 172 Net operating loss deduction
- § 1212 Capital loss carrybacks and carryovers
- § 1314(a) Amount and method of adjustment
- § 1362(a) Election; revocation; termination
Cited by 13 Code sections
- § 263A(i)(3) Capitalization and inclusion in inventory costs of certain expenses
- § 404A(g)(5) Deduction for certain foreign deferred compensation plans
- § 447(d) Method of accounting for corporations engaged in farming
- § 448(d)(7) Limitation on use of cash method of accounting
- § 458(d) Magazines, paperbacks, and records returned after the close of the taxable year
- § 460(e)(2)(B) Special rules for long-term contracts
- § 471(c)(4) General rule for inventories
- § 585(c)(3)(A)(iii) Reserves for losses on loans of banks
- § 593(g)(1)(C) Reserves for losses on loans
- § 807(f)(1)(B) Rules for certain reserves
- § 985(b)(4) Functional currency
- § 1361(g) S corporation defined
- § 1371(f) Coordination with subchapter C
Cited in 85 regulations not issued under it
- § 1.56(g)-1 Adjusted current earnings.
- § 1.59A-0 Table of contents.
- § 1.59A-3 Base erosion payments and base erosion tax benefits.
- § 1.163-13 Treatment of bond issuance premium.
- § 1.166-2 Evidence of worthlessness.
- § 1.168(i)-4 Changes in use.
- § 1.171-4 Election to amortize bond premium on taxable bonds.
- § 1.171-5 Effective date and transition rules.
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.199A-0 Table of contents.
- § 1.199A-3 Qualified business income, qualified REIT dividends, and qualified PTP income.
- § 1.263(a)-0 Outline of regulations under section 263(a).
- § 1.263(a)-4 Amounts paid to acquire or create intangibles.
- § 1.263(a)-5 Amounts paid or incurred to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions.
- § 1.263A-0 Outline of regulations under section 263A.
- § 1.263A-1 Uniform capitalization of costs.
- § 1.263A-2 Rules relating to property produced by the taxpayer.
- § 1.263A-3 Rules relating to property acquired for resale.
- § 1.263A-7 Changing a method of accounting under section 263A.
- § 1.280F-6 Special rules and definitions.
- § 1.381(c)(4)-1 Method of accounting.
- § 1.381(c)(5)-1 Inventory method.
- § 1.381(c)(21)-1 Pre-1954 adjustments resulting from change in method of accounting.
- § 1.446-1 General rule for methods of accounting.
Show 61 more
- § 1.446-5 Debt issuance costs.
- § 1.446-7 Net asset value method for certain money market fund shares.
- § 1.448-1 Limitation on the use of the cash receipts and disbursements method of accounting.
- § 1.448-2 Limitation on the use of the cash receipts and disbursements method of accounting for taxable years beginning after December 31, 2017.
- § 1.451-3 Timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting.
- § 1.455-2 Scope of election under section 455.
- § 1.456-2 Scope of election under section 456.
- § 1.456-7 Transitional rule.
- § 1.458-1 Exclusion for certain returned magazines, paperbacks, or records.
- § 1.458-2 Manner of and time for making election.
- § 1.460-1 Long-term contracts.
- § 1.460-3 Long-term construction contracts.
- § 1.460-4 Methods of accounting for long-term contracts.
- § 1.460-5 Cost allocation rules.
- § 1.461-5 Recurring item exception.
- § 1.466-1 Method of accounting for the redemption cost of qualified discount coupons.
- § 1.466-2 Special protective election for certain taxpayers.
- § 1.466-3 Manner of and time for making election under section 466.
- § 1.467-9 Effective/applicability dates and automatic method changes for certain agreements.
- § 1.469-0 Table of contents.
- § 1.469-2T Passive activity loss (temporary).
- § 1.471-1 Need for inventories.
- § 1.471-6 Inventories of livestock raisers and other farmers.
- § 1.471-11 Inventories of manufacturers.
- § 1.472-8 Dollar-value method of pricing LIFO inventories.
- § 1.585-6 Recapture method of changing from the reserve method of section 585.
- § 1.585-7 Elective cut-off method of changing from the reserve method of section 585.
- § 1.585-8 Rules for making and revoking elections under §§ 1.585-6 and 1.585-7.
- § 1.597-4 Bridge Banks and Agency Control.
- § 1.761-2 Exclusion of certain unincorporated organizations from the application of all or part of subchapter K of chapter 1 of the Internal Revenue Code.
- § 1.807-4 Adjustment for change in computing reserves.
- § 1.832-4 Gross income.
- § 1.905-1 When credit for foreign income taxes may be taken.
- § 1.936-7 Manner of making election under section 936 (h)(5); special election for export sales; revocation of election under section 936(a).
- § 1.964-1 Determination of the earnings and profits of a foreign corporation.
- § 1.985-1 Functional currency.
- § 1.985-2 Election to use the United States dollar as the functional currency of a QBU.
- § 1.985-5 Adjustments required upon change in functional currency.
- § 1.1251-2 Excess deductions account.
- § 1.1275-2 Special rules relating to debt instruments.
- § 1.1371-1 Distributions of money by an eligible terminated S corporation.
- § 1.1371-2 Impact of Audit PTTP on ETSC Period.
- § 1.1374-0 Table of contents.
- § 1.1374-3 Net unrealized built-in gain.
- § 1.1374-4 Recognized built-in gain or loss.
- § 1.1400L(b)-1 Additional first year depreciation deduction for qualified New York Liberty Zone property.
- § 1.1502-13 Intercompany transactions.
- § 1.1502-17 Methods of accounting.
- § 1.1502-32 Investment adjustments.
- § 1.1502-36 Unified loss rule.
- § 1.1502-76 Taxable year of members of group.
- § 1.6655-0 Table of contents.
- § 1.6655-2 Annualized income installment method.
- § 1.6655-6 Methods of accounting.
- § 1.9001-1 Change from retirement to straight-line method of computing depreciation.
- § 1.9002 Statutory provisions; Dealer Reserve Income Adjustment Act of 1960 (74 Stat. 124).
- § 1.9002-2 Election to have the provisions of section 481 of the Internal Revenue Code of 1954 apply.
- § 1.9002-3 Election to have the provisions of section 481 of the Internal Revenue Code of 1954 not apply.
- § 1.9002-8 Manner of exercising elections.
- § 301.9100-3 Other extensions.
- § 301.9100-6T Time and manner of making certain elections under the Deficit Reduction Act of 1984.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–97Parts changed in 2017: (d)
- Amended by Pub. L. 113–295Parts changed in 2014: (b)(3)(C)
- Amended by Pub. L. 96–471Parts changed in 1980: (d)
- Amended by Pub. L. 94–455Parts changed in 1976: (b)(1) (b)(4) (c)
- Amended by Pub. L. 91–172Parts changed in 1969: (b)(3)(A)
- Enacted by Pub. L. 85–866Parts changed in 1958: (a)(2) (b)(1) (b)(2) (b)(3)(A) (b)(4)
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter E Accounting Periods and Methods of Accounting
- Part III ADJUSTMENTS
Nearby sections
- § 481 Adjustments required by changes in method of accounting
- § 482 Allocation of income and deductions among taxpayers
- § 483 Interest on certain deferred payments
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
References in Text
The date of the enactment of the Tax Cuts and Jobs Act and the date of such enactment, referred to in subsec. (d)(2), probably mean the date of enactment of title I of Pub. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Pub. L. 115–97 included such Short Title, but it was not enacted as part of title I of Pub. L. 115–97.
Amendments
2017—Subsec. (d). Pub. L. 115–97 added subsec. (d).
2014—Subsec. (b)(3)(C). Pub. L. 113–295 struck out subpar. (C) which read as follows: “In applying section 7807(b)(1), the provisions of chapter 1 (other than subchapter E, relating to self-employment income) and chapter 2 of the Internal Revenue Code of 1939 shall be treated as the corresponding provisions of the Internal Revenue Code of 1939.”
1980—Subsec. (d). Pub. L. 96–471 struck out subsec. (d) which provided that this section was not to apply to a change to which section 453 of this title, relating to change to installment method, applied.
1976—Subsecs. (b)(1), (2). Pub. L. 94–455, § 1901(a)(70)(B), struck out “, other than the amount of such adjustments to which paragraph (4) or (5) applies,” after “required by subsection (a)(2)”.
Subsec. (b)(4), (5), (6). Pub. L. 94–455, § 1901(a)(70)(A), struck out par. (4) which related to special rule for pre-1954 general adjustments, par. (5) which related to special rule for pre-1954 adjustments in case of certain decedents, and par. (6) which related to the application of the special rule for pre-1954 general adjustments.
Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
1969—Subsec. (b)(3)(A). Pub. L. 91–172 substituted “loss carryback or carryover” for “loss carryover”.
1958—Subsec. (a)(2). Pub. L. 85–866, § 29(a)(1), inserted “unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer”, after “does not apply”.
Subsec. (b)(1). Pub. L. 85–866, § 29(b)(1)–(3), inserted “, other than the amount of such adjustments to which paragraph (4) or (5) applies,” after “subsection (a)(2)” and substituted “the aggregate increase in the taxes” for “the aggregate of the taxes” and “which would result if one-third of such increase in taxable income” for “which would result if one-third of such increase”.
Subsec. (b)(2). Pub. L. 85–866, § 29(b)(1), (4), inserted “other than the amount of such adjustments to which paragraph (4) or (5) applies,” after “subsection (a)(2)”, wherever appearing and “(or under the corresponding provisions of prior revenue laws)” after “the net increase in the taxes under this Chapter”.
Subsec. (b)(3)(A). Pub. L. 85–866, § 29(b)(5), substituted “paragraph (1) or (2)” for “paragraph (2)”, wherever appearing.
Subsec. (b)(4) to (6). Pub. L. 85–866, § 29(a)(2), added pars. (4) to (6).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 1980 Amendment
For effective date of amendment by Pub. L. 96–471, see section 6(a)(1) of Pub. L. 96–471, set out as an Effective Date note under section 453 of this title.
Effective Date of 1976 Amendment
Amendment by section 1901(a)(70) 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 of 1969 Amendment
Amendment by Pub. L. 91–172 applicable with respect to net capital losses sustained in taxable years beginning after Dec. 31, 1969, see section 512(g) of Pub. L. 91–172, set out as a note under section 1212 of this title.
Effective Date of 1958 Amendment
Pub. L. 85–866, title I, § 29(d), Sept. 2, 1958, 72 Stat. 1629, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) In general.— The amendments made by this section [amending this section and section 381 of this title] shall apply with respect to any change in a method of accounting where the year of the change (within the meaning of section 481 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) is a taxable year beginning after December 31, 1953, and ending after August 16, 1954.“(2) Exception for certain agreements.— The amendments made by subsections (a), (b)(I), and (c) [amending this section and section 381 of this title] shall not apply if before the date of the enactment of this Act [Sept. 2, 1958]—“(A) the taxpayer applied for a change in the method of accounting in the manner provided by regulations prescribed by the Secretary of the Treasury or his delegate, and“(B) the taxpayer and the Secretary of the Treasury or his delegate agreed to the terms and conditions for making the change.”
Changes in Treatment of Policyholder Dividends by Qualified Group Self-Insurers’ Funds
Pub. L. 101–239, title VII, § 7816(m), Dec. 19, 1989, 103 Stat. 2421, provided that: “If, for the 1st taxable year beginning on or after January 1, 1987, a qualified group self-insurers’ fund changes its treatment of policyholder dividends to take into account such dividends no earlier than the date that the State regulatory authority determines the amount of the policyholder dividend that may be paid, then such change shall be treated as a change in a method of accounting and no adjustment under section 481(a) of the Internal Revenue Code of 1986 shall be made with respect to such change in method of accounting.”
Transitional Provisions for Income Tax Treatment of Dealer Reserve Income
Pub. L. 86–459, May 13, 1960, 74 Stat. 124, authorized any person who computed taxable income under the accrual method of accounting for his most recent taxable year ending on or before June 22, 1959, and who treated dealer reserve income for such taxable year as accruable for a subsequent taxable year, to elect before Sept. 1, 1960, to have section 481 of this title apply to the treatment for income tax purposes of dealer reserve income.
Election To Return to Former Method of Accounting
Pub. L. 85–866, title I, § 29(e), Sept. 2, 1958, 72 Stat. 1629, authorized an election by certain taxpayers, who, for any taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, and before Sept. 2, 1958, computed their taxable incomes using different accounting methods in succeeding taxable years, to return to their first method of accounting, where the election was made within six months after Sept. 2, 1958. Claims for refunds of overpayments of tax resulting from the election were to be filed within one year after the date of the election. Such an election was to be considered a consent to an assessment of a deficiency resulting from the election, where the assessment is made within one year after the date of the election.