§444 Election of Taxable Year Other Than Required Taxable Year

Summary

Partnerships, S corporations, and personal service corporations may choose a tax year that is different from the one they would normally have. In most cases the choice can only delay reporting by no more than 3 months. If a business is changing its tax year, the delay can be no longer than the smaller of 3 months or the delay of the year it is changing from. For a business’s first tax year starting after December 31, 1986, it may use the same tax year it had in 1986. The law calls the delay the “deferral period” — the months from the start of the chosen year to the end of the first required year that ends inside it. The business itself must make the choice. Partnerships and S corporations that choose must make payments required by section 7519. Personal service corporations that choose are subject to the deduction limits in section 280H. The choice stays in effect until the business changes its tax year or ends the choice. A change to a required tax year can be made without the Secretary’s consent. If the choice ends for certain reasons, the business cannot make another choice. Generally no election is allowed if the business is part of a tiered group, and it ends if the business joins one, except when the group is only partnerships or only S corporations (or both) and they all use the same tax year. “Required tax year” and “personal service corporation” are defined by sections 706(b), 1378, 441(i), and 441(i)(2); for that rule those sections are treated as if they applied to years beginning before January 1, 1987. The Secretary must issue rules to carry out these limits and stop attempts to avoid them.