§444 Election of Taxable Year Other Than Required Taxable Year

Summary

Partnerships, S corporations, and personal service corporations may pick a different taxable year than the one they are normally required to use. In most cases the new year can only push income into the future by up to 3 months. If an entity is changing its taxable year, the delay cannot be longer than the shorter of 3 months or the old year’s deferral period. For the first taxable year starting after December 31, 1986, an entity may use the same year it used in 1986. "Deferral period" means the months from the start of the chosen year to the end of the first required taxable year that ends inside that year. The entity itself must make the election. If a partnership or S corporation elects, it must make the payments required by section 7519. If a personal service corporation elects, it is subject to the deduction limits of section 280H. Elections stay in effect until the entity changes its year or ends the election, and once ended the entity cannot elect again. Elections are generally not allowed for entities that are part of tiered structures and end if the entity joins one, unless the tier only includes partnerships or S corporations that all use the same taxable year. "Required taxable year" is set by sections 706(b), 1378, or 441(i) (not counting business-purpose years). "Personal service corporation" uses the meaning in section 441(i)(2). The Secretary will make rules to enforce these limits and prevent avoidance.