republic-os/legal/us/code/title-26/chapter-1/section-456.md

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LegalText	26 U.S.C. § 456	Prepaid dues income of certain membership organizations	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	456	26 U.S.C. § 456	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s456	data/legal/raw/us/code/title-26/usc26.xml	68e65ce3d58b8684f9071426094566a049a205a1411b56e17189354608facd54	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	48de9e3e3372e2e279ef0e267b72cc74edad12212e5c368221ad51fdb58712c8	2026-07-04	official	legal us-code

26 U.S.C. § 456 - Prepaid dues income of certain membership organizations

Text

(a) Year in which included Prepaid dues income to which this section applies shall be included in gross income for the taxable years during which the liability described in subsection (e)(2) exists.

(b) Where taxpayer’s liability ceases In the case of any prepaid dues income to which this section applies—

(1) If the liability described in subsection (e)(2) ends, then so much of such income as was not includible in gross income under subsection (a) for preceding taxable years shall be included in gross income for the taxable year in which the liability ends.

(2) If the taxpayer ceases to exist, then so much of such income as was not includible in gross income under subsection (a) for preceding taxable years shall be included in gross income for the taxable year in which such cessation of existence occurs.

(c) Prepaid dues income to which this section applies (1) Election of benefits This section shall apply to prepaid dues income if and only if the taxpayer makes an election under this section with respect to the trade or business in connection with which such income is received. The election shall be made in such manner as the Secretary may by regulations prescribe. No election may be made with respect to a trade or business if in computing taxable income the cash receipts and disbursements method of accounting is used with respect to such trade or business.

(2) Scope of election An election made under this section shall apply to all prepaid dues income received in connection with the trade or business with respect to which the taxpayer has made the election; except that the taxpayer may, to the extent permitted under regulations prescribed by the Secretary, include in gross income for the taxable year of receipt the entire amount of any prepaid dues income if the liability from which it arose is to end within 12 months after the date of receipt. Except as provided in subsection (d), and election made under this section shall not apply to any prepaid dues income received before the first taxable year for which the election is made.

(3) When election may be made (A) With consent A taxpayer may, with the consent of the Secretary, make an election under this section at any time.

(B) Without consent A taxpayer may, without the consent of the Secretary, make an election under this section for its first taxable year in which it receives prepaid dues income in the trade or business. Such election shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof) with respect to which such election is made.

(4) Period to which election applies An election under this section 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 the revocation of such election. For purposes of this title, the computation of taxable income under an election made under this section shall be treated as a method of accounting.

(d) Transitional rule (1) Amount includible in gross income for election years If a taxpayer makes an election under this section with respect to prepaid dues income, such taxpayer shall include in gross income, for each taxable year to which such election applies, not only that portion of prepaid dues income received in such year otherwise includible in gross income for such year under this section, but shall also include in gross income for such year an additional amount equal to the amount of prepaid dues income received in the 3 taxable years preceding the first taxable year to which such election applies which would have been included in gross income in the taxable year had the election been effective 3 years earlier.

(2) Deductions of amounts included in income more than once A taxpayer who makes an election with respect to prepaid dues income, and who includes in gross income for any taxable year to which the election applies an additional amount computed under paragraph (1), shall be permitted to deduct, for such taxable year and for each of the 4 succeeding taxable years, an amount equal to one-fifth of such additional amount, but only to the extent that such additional amount was also included in the taxpayer’s gross income during any of the 3 taxable years preceding the first taxable year to which such election applies.

(e) Definitions For purposes of this section—

(1) Prepaid dues income The term “prepaid dues income” means any amount (includible in gross income) which is received by a membership organization in connection with, and is directly attributable to, a liability to render services or make available membership privileges over a period of time which extends beyond the close of the taxable year in which such amount is received.

(2) Liability The term “liability” means a liability to render services or make available membership privileges over a period of time which does not exceed 36 months, which liability shall be deemed to exist ratably over the period of time that such services are required to be rendered, or that such membership privileges are required to be made available.

(3) Membership organization The term “membership organization” means a corporation, association, federation, or other organization—

(A) organized without capital stock of any kind, and

(B) no part of the net earnings of which is distributable to any member.

(4) Receipt of prepaid dues income Prepaid dues income shall be treated as received during the taxable year for which it is includible in gross income under section 451 (without regard to this section).

(Added Pub. L. 87–109, § 1(a), July 26, 1961, 75 Stat. 222; amended Pub. L. 94–455, title XIX, §§ 1901(a)(68), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1775, 1834.)

Notes

Editorial Notes

Amendments1976—Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing. Subsec. (c)(3)(B). Pub. L. 94–455, § 1901(a)(68), substituted “for its first taxable year” for “for its first taxable year (i) which begins after December 31, 1960, and (ii)”.

Statutory Notes and Related Subsidiaries

Effective Date of 1976 AmendmentAmendment by section 1901(a)(68) 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 DatePub. L. 87–109, § 2, July 26, 1961, 75 Stat. 224, provided that: “The amendments made by this Act [enacting this section] shall apply with respect to taxable years beginning after December 31, 1960.”