ADJUSTMENTS REQUIRED BY CHANGES IN METHOD OF ACCOUNTING.

SEC. 29. ADJUSTMENTS REQUIRED BY CHANGES IN METHOD OF ACCOUNTING. (a) Adjustments for 1939 Code Years.— (1) Adjustments taken into account.—Paragraph (2) of section 481 (a) (relating to adjustments required by changes in method of accounting) is amended to read as follows: “(2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.” (2) Special rule where adjustments are substantial.—Section 481 (b) (relating to limitation on tax where adjustments are substantial) is amended by adding at the end thereof the following new paragraphs: (3) Special rule for pre-1954 adjustments generally.— Except as provided in paragraphs (5) and (6)— “(A) Amount of adjustments to which paragraph applies.—The net amount of the adjustments required by subsection (a), to the extent that such amount does not exceed the net amount of adjustments which would have been required if the change in method of accounting had been made in the first taxable year beginning after December 31, 1953, and ending after August 16, 1954, shall be taken into ac- 72 Stat. 1627 count by the taxpayer in computing taxable income in the manner provided in subparagraph (B), but only if such net amount of such adjustment would increase the taxable income of such taxpayer by more than $3,000. “(B) Years in which amounts are to be taken into account.—One-tenth of the net amount of the adjustments described in subparagraph (A) shall (except as provided in subparagraph (C)) be taken into account in each of the 10 taxable years beginning with the year of the change. The amount to be taken into account for each taxable year in the 10-year period shall be taken into account whether or not for such year the assessment of tax is prevented by operation of any law or rule of law. If the year of the change was a taxable year ending before January 1, 1958, and if the taxpayer so elects (at such time and in such manner as the Secretary or his delegate shall by regulations prescribe), the 10-year period shall begin with the first taxable year which begins after December 31, 1957. If the taxpayer elects under the preceding sentence to begin the 10-year period with the first taxable year which begins after December 31, 1957, the 10-year period shall be reduced by the number of years, beginning with the year of the change, in respect of which assessment of tax is prevented by operation of any law or rule of law on the date of the enactment of the Technical Amendments Act of 1958. “(C) Limitation on years in which adjustments can be taken into account.— The net amount of any adjustments described in subparagraph (A), to the extent not taken into account in prior taxable years under subparagraph (B)— “(i) in the case of a taxpayer who is an individual, shall be taken into account in the taxable year in which he dies or ceases to engage in a trade or business, “(ii) in the case of a taxpayer who is a partner, his distributive share of such net amount shall be taken into account in the taxable year in which the partnership terminates, or in which the entire interest of such partner is transferred or liquidated, or “(iii) in the case of a taxpayer who is a corporation, shall be taken into account in the taxable year in which such corporation ceases to engage in a trade or business unless such net amount of such adjustment is required to be taken into account by the acquiring corporation under section 381 (c) (21). “(D) Termination of application of paragraph.—The provisions of this paragraph shall not apply with respect to changes in methods of accounting made in taxable years beginning after December 31, 1963. “(5) Special rule for pre-1954 adjustments in case of certain decedents.—A change from the cash receipts and disbursements method to the accrual method in any case involving the use of inventories, made on or after August 16, 1954, and before January 1, 1958, for a taxable year to which this section applies, by the executor or administrator of a decedent’s estate in the first return filed by such executor or administrator on behalf of the decedent, shall be given effect in determining taxable income (other than for the purpose of computing a net operating loss carryback to any prior taxable year of the decedent), and, if the net amount of any adjustments required by subsection (a) in 72 Stat. 1628 respect of taxable years to which this section does not apply would increase the taxable income of the decedent by more than $3,000, then the tax attributable to such net adjustments shall not exceed an amount equal to the tax that would have been payable on the cash receipts and disbursements method for the years for which the executor or administrator filed returns on behalf of the decedent, computed for each such year as though a ratable portion of the taxable income for such year had been received in each of 10 taxable years beginning and ending on the same dates as the taxable year for which the tax is being computed. “(6) Application of paragraph (4).—Paragraph (4) shall not apply with respect to any taxpayer, if the taxpayer elects to take the net amount of the adjustments described in paragraph (4) (A) into account in the manner provided by paragraph (1) or (2). An election to take the net amount of such adjustments into account in the manner provided by paragraph (1) or (2) may be made only if the taxpayer consents in writing to the assessment, within such period as may be agreed on with the Secretary or his delegate, of any deficiency for the year of the change, to the extent attributable to taking the net amount of the adjustments described in paragraph (4) (A) into account in the manner provided by paragraph (1) or (2), even though at the time of filing such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law. An election under this paragraph shall be made at such time and in such manner as the Secretary or his delegate shall by regulations prescribe.” (b) Technical Amendments.— Section 481 (b) (relating to limitation on tax where adjustments are substantial) is amended— (1) By inserting after “subsection (a) (2)” each place it appears in paragraph (1) or (2) the following: “, other than the amount of such adjustments to which paragraph (4) or (5) applies,”. (2) By striking out “the aggregate of the taxes” in paragraph (1) and inserting in lieu thereof “the aggregate increase in the taxes”. (3) By striking out “which would result if one-third of such increase” in paragraph (1) and inserting in lieu thereof “which would result if one-third of such increase in taxable income”. (4) By inserting after “the net increase in the taxes under this chapter” in paragraph (2) the following: “(or under the corresponding provisions of prior revenue laws)”. (5) By striking out “paragraph (2)” each place it appears in paragraph (3) (A) and inserting in lieu thereof “paragraph (1) or (2)”. (c) Amendment of Section 381 (c).— Section 381 (c) (relating to items of distributor or transferor corporation in certain corporate acquisitions) is amended by adding at the end thereof the following new paragraph: “(21) Pre-1954 adjustments resulting from change in method of accounting.— The acquiring corporation shall take into account any net amount of any adjustment described in section 481 (b) (4) of the distributor or transferor corporation— “(A) to the extent such net amount of such adjustment has not been taken into account by the distributor or transferor corporation, and “(B) in the same manner and at the same time as such net amount would have been taken into account by the distributor or transferor corporation.” 72 Stat. 1629 (d) Effective Date.— (1) In general.—The amendments made by this section 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 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) (1), and (c) shall not apply if before the date of the enactment of this Act— (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. (e) Election To Return to Former Method of Accounting.— (1) Election.— Any taxpayer who for any taxable year beginning after December 31, 1953, and ending after August 16, 1954, and before the date of enactment of this Act, computed his taxable income under a method of accounting different from the method under which his taxable income for the preceding taxable year was computed, may elect to recompute his taxable income, beginning with the taxable year for which taxable income was computed under such different method of accounting, under the method of accounting under which taxable income was computed for such preceding taxable year. An election under this paragraph shall be made within 6 months after the date of the enactment of this Act, and shall be made in such manner as the Secretary of the Treasury or his delegate may provide. This paragraph shall not apply to any taxpayer— (A) to whom subsection (d) (2) applies, or (B) who was required, before the date of the enactment of this Act, by the Secretary of the Treasury or his delegate to change his method of accounting. (2) Statute of limitations.—If assessment of any deficiency for any taxable year resulting from an election under paragraph (1) is prevented on the date on which such election is made, or at any time within one year after such date, by the operation of any law or rule of law, such assessment may, nevertheless, be made if made within one year after such date. An election by a taxpayer under paragraph (1) shall be considered as a consent to the assessment pursuant to this paragraph of any such deficiency. If refund or credit of any overpayment of income tax resulting from an election under paragraph (1) is prevented on the date on which such election is made, or at any time within one year after such date, by the operation of any law or rule of law, refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefor is filed within one year after such date.