[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.456-3]

[Page 155-156]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.456-3  Method of allocation.

    (a) Prepaid dues income for which an election has been made under 
section 456 shall be included in gross income over the period of time 
during which the liability to render services or make available 
membership privileges exists. The liability to render the services or 
make available the membership privileges shall be deemed to exist 
ratably over the period of time such services are required to be 
rendered, or such membership privileges are required to be made 
available. Thus, the prepaid dues income shall be included in gross 
income ratably over the period of the membership contract. For example, 
Corporation X, a membership organization, which files its income tax 
returns on a calendar year basis, elects, for its taxable year beginning 
January 1, 1961, to report its prepaid dues income in accordance with 
the provisions of section 456. On March 31, 1961, it sells a 2-year 
membership for $48 payable in advance, the membership to extend from May 
1, 1961, to April 30, 1963. X shall include in its gross income for the 
taxable year 1961 \8/24\ of the $48, or $16, and for the taxable year 
1962 \12/24\ of the $48, or $24, and for the taxable year 1963 \4/24\ of 
the $48, or $8.

[[Page 156]]

    (b) For purposes of determining the period or periods over which the 
liability of the taxpayer exists, and for purposes of allocating prepaid 
dues income to such periods, the taxpayer may aggregate similar 
transactions during the taxable year in any reasonable manner, provided 
the method of aggregation and allocation is consistently followed.

[T.D. 6937, 32 FR 16395, Nov. 30, 1967]