Exclusion for Returned Periodicals and Records

§ 458. Magazines, paperbacks, and records returned after the close of the taxable year(a) Exclusion from gross incomeA taxpayer who is on an accrual method of accounting may elect not to include in the gross income for the taxable year the income attributable to the qualified sale of any magazine, paperback, or record which is returned to the taxpayer before the close of the merchandise return period. (b) Definitions and special rulesFor purposes of this section—(1) MagazineThe term “magazine” includes any other periodical. (2) PaperbackThe term “paperback” means any book which has a flexible outer cover and the pages of which are affixed directly to such outer cover. Such term does not include a magazine. (3) RecordThe term “record” means a disc, tape, or similar object on which musical, spoken, or other sounds are recorded. (4) Separate application with respect to magazines, paperbacks, and recordsIf a taxpayer makes qualified sales of more than one category of merchandise in connection with the same trade or business, this section shall be applied as if the qualified sales of each such category were made in connection with a separate trade or business. For purposes of the preceding sentence, magazines, paperbacks, and records shall each be treated as a separate category of merchandise. (5) Qualified saleA sale of a magazine, paperback, or record is a qualified sale if—(A) at the time of sale, the taxpayer has a legal obligation to adjust the sales price of such magazine, paperback, or record if it is not resold, and (B) the sales price of such magazine, paperback, or record is adjusted by the taxpayer because of a failure to resell it. (6) Amount excludedThe amount excluded under this section with respect to any qualified sale shall be the lesser of—(A) the amount covered by the legal obligation described in paragraph (5)(A), or (B) the amount of the adjustment agreed to by the taxpayer before the close of the merchandise return period. (7) Merchandise return period(A) Except as provided in subparagraph (B), the term “merchandise return period” means, with respect to any taxable year—(i) in the case of magazines, the period of 2 months and 15 days first occurring after the close of taxable year, or (ii) in the case of paperbacks and records, the period of 4 months and 15 days first occurring after the close of the taxable year. (B) The taxpayer may select a shorter period than the applicable period set forth in subparagraph (A). (C) Any change in the merchandise return period shall be treated as a change in the method of accounting.