§444 Election of taxable year other than required taxable year

Summary

A partnership, S corporation, or personal service corporation can choose a tax year that is different from its required tax year, but there are limits. The chosen tax year can’t push income into the future by more than 3 months. If the entity is changing its tax year, the delay can’t be longer than the shorter of 3 months or the delay of the old year. For an entity’s first tax year starting after December 31, 1986, it may use the same tax year it had in 1986. The “deferral period” means the months from the start of the year to the end of the first required year that ends in that year. If a partnership or S corporation makes this choice, it must make the payments required by section 7519. A personal service corporation that makes this choice must follow the deduction limits in section 280H. The entity itself must make the election, and it stays in effect until the entity changes its year or ends the election. An entity generally cannot make the election if it is part of a tiered structure, and the election stops if it becomes part of one, except when the whole tier consists only of partnerships or S corporations that all use the same tax year. The law defines “required taxable year” by sections 706(b), 1378, and 441(i) (treated as in effect for years before January 1, 1987), and “personal service corporation” by section 441(i)(2). The Secretary of the Treasury must write rules to carry out these points and to stop people from avoiding the limits by changing an entity’s form.