§443 — Title 26 Internal Revenue Code | U.S. Code

Summary

You must file a tax return for a period shorter than 12 months when you change your annual accounting period with IRS approval or when you exist for only part of what would otherwise be your taxable year. For that short period you generally “annualize” income: multiply the short‑period modified taxable income by 12, divide by the number of months in the short period, and compute tax so it is the same fraction of the annual tax as the short period is of 12 months. If you ask and show what your taxable income would be for a full 12‑month period (computed as if that 12‑month period were a taxable year), the tax for the short period can be reduced. The reduction is the larger of two amounts based on ratios of modified taxable income or the tax computed just on the short period. The 12‑month comparison period can start on the first day of the short period or end on its last day if you no longer exist after the first option. Apply as the IRS rules require, but not later than the due date (including extensions) for the return for the first taxable year ending on or after the day 12 months after the short period begins. The IRS will make rules for how to apply. Modified taxable income means gross income minus the deductions allowed for the period (for short periods, personal exemptions are adjusted). For non‑corporate taxpayers who do not use the special reduction, exemptions are prorated by the number of months over 12. The alternative minimum taxable income is annualized the same way. The special reduction rules do not apply to accumulated earnings tax, personal holding company tax, or the taxable income rules for certain regulated investment companies and real estate investment trusts.

Title 26, §443

Internal Revenue Code — Source: USLM XML via OLRC

(a)A return for a period of less than 12 months (referred to in this section as “short period”) shall be made under any of the following circumstances:

(1)When the taxpayer, with the approval of the Secretary, changes his annual accounting period. In such a case, the return shall be made for the short period beginning on the day after the close of the former taxable year and ending at the close of the day before the day designated as the first day of the new taxable year.

(2)When the taxpayer is in existence during only part of what would otherwise be his taxable year.

(b)(1)If a return is made under paragraph (1) of subsection (a), the taxable income for the short period shall be placed on an annual basis by multiplying the modified taxable income for such short period by 12, dividing the result by the number of months in the short period. The tax shall be the same part of the tax computed on the annual basis as the number of months in the short period is of 12 months.

(2)(A)If the taxpayer applies for the benefits of this paragraph and establishes the amount of this taxable income for the 12-month period described in subparagraph (B), computed as if that period were a taxable year and under the law applicable to that year, then the tax for the short period, computed under paragraph (1), shall be reduced to the greater of the following:

(i)an amount which bears the same ratio to the tax computed on the taxable income for the 12-month period as the modified taxable income computed on the basis of the short period bears to the modified taxable income for the 12-month period; or

(ii)the tax computed on the modified taxable income for the short period.

(B)The 12-month period referred to in subparagraph (A) shall be—

(i)the period of 12 months beginning on the first day of the short period, or

(ii)the period of 12 months ending at the close of the last day of the short period, if at the end of the 12 months referred to in clause (i) the taxpayer is not in existence or (if a corporation) has theretofore disposed of substantially all of its assets.

(C)Application for the benefits of this paragraph shall be made in such manner and at such time as the regulations prescribed under subparagraph (D) may require; except that the time so prescribed shall not be later than the time (including extensions) for filing the return for the first taxable year which ends on or after the day which is 12 months after the first day of the short period. Such application, in case the return was filed without regard to this paragraph, shall be considered a claim for credit or refund with respect to the amount by which the tax is reduced under this paragraph.

(D)The Secretary shall prescribe such regulations as he deems necessary for the application of this paragraph.

(3)For purposes of this subsection the term “modified taxable income” means, with respect to any period, the gross income for such period minus the deductions allowed by this chapter for such period (but, in the case of a short period, only the adjusted amount of the deductions for personal exemptions).

(c)In the case of a taxpayer other than a corporation, if a return is made for a short period by reason of subsection (a)(1) and if the tax is not computed under subsection (b)(2), then the exemptions allowed as a deduction under section 151 (and any deduction in lieu thereof) shall be reduced to amounts which bear the same ratio to the full exemptions as the number of months in the short period bears to 12.

(d)If a return is made for a short period by reason of subsection (a)—

(1)the alternative minimum taxable income for the short period shall be placed on an annual basis by multiplying such amount by 12 and dividing the result by the number of months in the short period, and

(2)the amount computed under paragraph (1) of section 55(a) shall bear the same relation to the tax computed on the annual basis as the number of months in the short period bears to 12.

(e)For inapplicability of subsection (b) in computing—

(1)Accumulated earnings tax, see section 536.

(2)Personal holding company tax, see section 546.

(3)The taxable income of a regulated investment company, see section 852(b)(2)(E).

(4)The taxable income of a real estate investment trust, see section 857(b)(2)(C).

Notes & Related Subsidiaries

Editorial Notes

Amendments

2004—Subsec. (e)(3) to (5). Pub. L. 108–357 redesignated pars. (4) and (5) as (3) and (4), respectively, and struck out former par. (3) which read as follows: “Undistributed foreign personal holding company income, see section 557.” 1986—Subsec. (b)(1). Pub. L. 99–514, § 104(b)(7)(A), struck out “, and adding the zero bracket amount” after “by the number of months in the short period”. Subsec. (b)(2)(A)(ii). Pub. L. 99–514, § 104(b)(7)(B), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the tax computed on the sum of the modified taxable income for the short period plus the zero bracket amount.” Subsec. (d). Pub. L. 99–514, § 701(e)(3), substituted “and tax preferences” for “for tax preferences” in heading and amended text generally. Prior to amendment, subsec. (d) read as follows: “If a return is made for a short period by reason of subsection (a), then— “(1) in the case of a taxpayer other than a corporation, the alternative minimum taxable income for the short period shall be placed on an annual basis by multiplying that amount by 12 and dividing the result by the number of months in the short period, and the amount computed under paragraph (1) of section 55(a) shall be the same part of the tax computed on the annual basis as the number of months in the short period is of 12 months; and “(2) the $10,000 amount specified in section 56 (relating to minimum tax for tax preferences), modified as provided by section 58, shall be reduced to the amount which bears the same ratio to such specified amount as the number of days in the short period bears to 365.” 1983—Subsec. (e). Pub. L. 97–448 substituted “section 1398(d)(2)(E)” for “section 1398(d)(3)(E)”. 1980—Subsec. (d)(2). Pub. L. 96–222 struck out “in the case of a corporation,” before “the $10,000 amount”. Subsec. (e). Pub. L. 96–589 inserted cross reference to section 1398(d)(3)(E) for returns for a period of less than 12 months in the case of a debtor’s election to terminate a taxable year. 1978—Subsec. (b)(1). Pub. L. 95–600, § 703(o)(2), substituted “modified taxable income for such short period” for “gross income for such short period (minus the deductions allowed by this chapter for the short period, but only the adjusted amount of the deductions for personal exemptions)”. Subsec. (b)(2). Pub. L. 95–600, § 703(o)(1), substituted in cl. (i) “modified taxable income” for “taxable income” in two places and in cl. (ii) “the sum of the modified taxable income” for “the taxable income” and “plus the zero bracket amount” for “without placing the taxable income on an annual basis”. Subsec. (b)(3). Pub. L. 95–600, § 703(o)(3), added par. (3). Subsec. (d). Pub. L. 95–600, § 421(e)(2), substituted “Adjustment in computing minimum tax for tax preferences” for “Adjustment in exclusion for computing minimum tax for tax preferences” in heading, redesignated existing provisions as par. (2) and as so redesignated applied par. (2) to corporations, and added par. (1). 1977—Subsec. (b)(1). Pub. L. 95–30 substituted “multiplying the gross income for such short period (minus the deductions allowed by this chapter for the short period, but only the adjusted amount of the deductions for personal exemptions) by 12, dividing the result by the number of months in the short period, and adding the zero bracket amount” for “multiplying such income by 12, and dividing the result by the number of months in the short period”. 1976—Subsec. (a)(1). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (a)(3). Pub. L. 94–455, § 1204(c)(2), struck out par. (3) which made termination of taxpayer’s taxable year under section 6851 as one of the circumstances under which a tax return for a period of less than 12 months shall be made. Subsec. (b)(2)(D). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (d). Pub. L. 94–455, § 301(e), substituted “$10,000” for “$30,000”. Subsec. (e)(5). Pub. L. 94–455, § 1607(b)(1)(C), substituted “section 857(b)(2)(C)” for “section 857(b)(2)(D)”. 1969—Subsecs. (d), (e). Pub. L. 91–172 added subsec. (d) and redesignated former subsec. (d) as (e). 1960—Subsec. (d)(5). Pub. L. 86–779 added par. (5).

Statutory Notes and Related Subsidiaries

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004

Amendments

note under section 1 of this title.

Effective Date

of 1986 AmendmentAmendment by section 104(b)(7) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. L. 99–514, set out as a note under section 1 of this title. Amendment by section 701(e)(3) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 701(f) of Pub. L. 99–514, set out as an

Effective Date

note under section 55 of this title.

Effective Date

of 1983 Amendment Pub. L. 97–448, title III, § 311(b)(1), Jan. 12, 1983, 96 Stat. 2411, provided that: “The amendment made by subsection (a) of section 304 [amending this section] shall take effect as if included in the

Amendments

made by section 3 of the Bankruptcy Tax Act of 1980 [section 3 of Pub. L. 96–589, which amended this section and section 6012 and 6103 of this title].”

Effective Date

of 1980 AmendmentAmendment by Pub. L. 96–589 applicable to bankruptcy cases commencing more than 90 days after Dec. 24, 1980, see section 7(b) of Pub. L. 96–589, set out as a note under section 108 of this title. Amendment by Pub. L. 96–222 effective, except as otherwise provided, as if it had been included in the provisions of the Revenue Act of 1978, Pub. L. 95–600, to which such amendment relates, see section 201 of Pub. L. 96–222, set out as a note under section 32 of this title.

Effective Date

of 1978 Amendment Pub. L. 95–600, title VII, § 703(o)(4), Nov. 6, 1978, 92 Stat. 2943, provided that: “The

Amendments

made by this subsection [amending this section] shall apply to taxable years beginning after December 31, 1976.” Amendment by section 421(e)(2) of Pub. L. 95–600 applicable to taxable years beginning after Dec. 31, 1978, see section 421(g) of Pub. L. 95–600, set out as a note under section 5 of this title.

Effective Date

of 1977 AmendmentAmendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.

Effective Date

of 1976 Amendment Pub. L. 94–455, title III, § 301(g)(1), Oct. 4, 1976, 90 Stat. 1553, provided that the amendment made by section 301(e) of Pub. L. 94–455 is effective for items of tax preferences for taxable years beginning after Dec. 31, 1975, with certain exceptions. Amendment by section 1204(c)(2) of Pub. L. 94–455 effective with respect to action taken under section 6851, 6861, or 6862 of this title where the notice and demand takes place after Feb. 28, 1977, see section 1204(d) of Pub. L. 94–455, as amended, set out as a note under section 6851 of this title. For

Effective Date

of amendment by section 1607(b)(1)(C) of Pub. L. 94–455, see section 1608(c) of Pub. L. 94–455, set out as a note under section 857 of this title.

Effective Date

of 1969 AmendmentAmendment by Pub. L. 91–172 applicable to taxable years ending after Dec. 31, 1969, see section 301(c) of Pub. L. 91–172, set out as a note under section 5 of this title.

Effective Date

of 1960 AmendmentAmendment by Pub. L. 86–779 applicable with respect to taxable years of real estate investment trusts beginning after Dec. 31, 1960, see section 10(k) of Pub. L. 86–779, set out as an

Effective Date

note under section 856 of this title. Applicability of Certain

Amendments

by Pub. L. 99–514 in Relation to Treaty Obligations of United StatesFor applicability of amendment by section 701(e)(3) of Pub. L. 99–514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L. 100–647, set out as a note under section 861 of this title.

§443 Returns for a period of less than 12 months

Summary

Title 26, §443

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Effective Date

Effective Date

Effective Date

Amendments

Effective Date

Effective Date

Amendments

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

Citations & Metadata