# 26 U.S.C. § 446: General rule for methods of accounting Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 446(a)(1). ## § 446(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. ## § 446(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. ## § 446(c) Permissible methods Subject to the provisions of subsections (a) and (b), a taxpayer may compute taxable income under any of the following methods of accounting— **§ 446(c)(1)** the cash receipts and disbursements method; **§ 446(c)(2)** an accrual method; **§ 446(c)(3)** any other method permitted by this chapter; or **§ 446(c)(4)** any combination of the foregoing methods permitted under regulations prescribed by the Secretary. ## § 446(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. ## § 446(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. ## § 446(f) Failure to request change of method of accounting If 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— **§ 446(f)(1)** to prevent the imposition of any penalty, or the addition of any amount to tax, under this title, or **§ 446(f)(2)** to diminish the amount of such penalty or addition to tax. ## Regulations - [Treas. Reg. § 1.446-1](/26/reg/1.446-1.md): General rule for methods of accounting. (interprets § 446) - [Treas. Reg. § 1.446-2](/26/reg/1.446-2.md): Method of accounting for interest. (interprets § 446) - [Treas. Reg. § 1.446-3](/26/reg/1.446-3.md): Notional principal contracts. (interprets § 446) - [Treas. Reg. § 1.446-3T](/26/reg/1.446-3T.md): Notional principal contracts (temporary). (interprets § 446) - [Treas. Reg. § 1.446-4](/26/reg/1.446-4.md): Hedging transactions. (interprets § 446) - [Treas. Reg. § 1.446-5](/26/reg/1.446-5.md): Debt issuance costs. (interprets § 446) - [Treas. Reg. § 1.446-6](/26/reg/1.446-6.md): REMIC inducement fees. (interprets § 446) - [Treas. Reg. § 1.446-7](/26/reg/1.446-7.md): Net asset value method for certain money market fund shares. (interprets § 446) ## Forms named in the regulations - [Form 3115](https://www.irs.gov/pub/irs-pdf/f3115.pdf) ## Final rules - [86 FR 810](https://www.federalregister.gov/documents/2021/01/06/2020-28653/taxable-year-of-income-inclusion-under-an-accrual-method-of-accounting-and-advance-payments-for) (2021): Taxable Year of Income Inclusion Under an Accrual Method of Accounting and Advance Payments for Goods, Services, and Other Items - [86 FR 254](https://www.federalregister.gov/documents/2021/01/05/2020-28888/small-business-taxpayer-exceptions-under-sections-263a-448-460-and-471) (2021): Small Business Taxpayer Exceptions Under Sections 263A, 448, 460 and 471 - [85 FR 56686](https://www.federalregister.gov/documents/2020/09/14/2020-16531/limitation-on-deduction-for-business-interest-expense) (2020): Limitation on Deduction for Business Interest Expense - [81 FR 44508](https://www.federalregister.gov/documents/2016/07/08/2016-16149/method-of-accounting-for-gains-and-losses-on-shares-in-money-market-funds-broker-returns-with) (2016): Method of Accounting for Gains and Losses on Shares in Money Market Funds; Broker Returns With Respect to Sales of Shares in Money Market Funds - [80 FR 26437](https://www.federalregister.gov/documents/2015/05/08/2015-11092/notional-principal-contracts-swaps-with-nonperiodic-payments) (2015): Notional Principal Contracts; Swaps With Nonperiodic Payments - [76 FR 45673](https://www.federalregister.gov/documents/2011/08/01/2011-19256/methods-of-accounting-used-by-corporations-that-acquire-the-assets-of-other-corporations) (2011): Methods of Accounting Used by Corporations That Acquire the Assets of Other Corporations - [71 FR 78066](https://www.federalregister.gov/documents/2006/12/28/06-9892/changes-in-computing-depreciation) (2006): Changes in Computing Depreciation - [69 FR 26040](https://www.federalregister.gov/documents/2004/05/11/04-10684/real-estate-mortgage-investment-conduits-application-of-section-446-with-respect-to-inducement-fees) (2004): Real Estate Mortgage Investment Conduits; Application of Section 446 With Respect to Inducement Fees - [69 FR 436](https://www.federalregister.gov/documents/2004/01/05/03-31823/guidance-regarding-deduction-and-capitalization-of-expenditures) (2004): Guidance Regarding Deduction and Capitalization of Expenditures - [69 FR 5](https://www.federalregister.gov/documents/2004/01/02/03-31820/changes-in-computing-depreciation) (2004): Changes in Computing Depreciation - [67 FR 76985](https://www.federalregister.gov/documents/2002/12/16/02-31614/intercompany-transactions-conforming-amendments-to-section-446) (2002): Intercompany Transactions: Conforming Amendments to Section 446 - [66 FR 2219](https://www.federalregister.gov/documents/2001/01/11/01-6/accounting-for-long-term-contracts) (2001): Accounting for Long-Term Contracts - [62 FR 68167](https://www.federalregister.gov/documents/1997/12/31/97-33357/requirements-respecting-the-adoption-or-change-of-accounting-method-extensions-of-time-to-make) (1997): Requirements Respecting the Adoption or Change of Accounting Method; Extensions of Time To Make Elections - [61 FR 30133](https://www.federalregister.gov/documents/1996/06/14/96-14918/debt-instruments-with-original-issue-discount-contingent-payments-anti-abuse-rule) (1996): Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule - [FR Doc. 94-16868](https://www.federalregister.gov/documents/1994/07/18/94-16868/clear-reflection-of-income-in-the-case-of-hedging-transactions) (1994): Clear Reflection of Income in the Case of Hedging Transactions ## Leading cases - [Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979)](https://www.courtlistener.com/opinion/109974/thor-power-tool-co-v-commissioner/) - [United States v. Hughes Properties, Inc., 476 U.S. 593 (1986)](https://www.courtlistener.com/opinion/111684/united-states-v-hughes-properties-inc/) - [The Bubble Room, Inc. v. United States, 159 F.3d 553 (Fed. Cir. 1999)](https://www.courtlistener.com/opinion/758790/the-bubble-room-inc-v-united-states/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.446-4](/26/prop/1.446-4_94-16869.md): Hedging transactions. (FI-34-94, proposed 1994-07-18) - [Prop. Treas. Reg. § 1.446-1](/26/prop/1.446-1_94-31531.md): (IA-42-93, proposed 1994-12-28) - [Prop. Treas. Reg. § 1.446-1](/26/prop/1.446-1_99-1787.md): General rule for methods of accounting. (REG-104924-98, proposed 1999-01-28) - [Prop. Treas. Reg. § 1.446-3](/26/prop/1.446-3_04-4151.md): Notional principal contracts. (REG-100420-03, proposed 2004-02-26) - [Prop. Treas. Reg. § 1.446-3](/26/prop/1.446-3_2011-23665.md): Notional principal contracts. (REG-111283-11, proposed 2011-09-16) - [Prop. Treas. Reg. § 1.446-3](/26/prop/1.446-3_2015-11093.md): Notional principal contracts. (REG-102656-15, proposed 2015-05-08) - [Prop. Treas. Reg. § 1.446-4](/26/prop/1.446-4_2017-27320.md): Hedging transactions. (REG-119514-15, proposed 2017-12-19) ## Connections Cites: none Cited by: § 404A Deduction for certain foreign deferred compensation plans; § 6110 Public inspection of written determinations Derived from: 1939 § 41 ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 151 - 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1834 - 1984-07-18: [Pub. L. 98-369](/26/act/98-369.md), 98 Stat. 696