Internal Revenue Code:Sec. 1378. Taxable year of S corporation

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Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter S - Tax Treatment of S Corporations and Their
              Shareholders
          PART IV - DEFINITIONS; MISCELLANEOUS
        

Statute

    Sec. 1378. Taxable year of S corporation
 
    (a) General rule
      For purposes of this subtitle, the taxable year of an S
    corporation shall be a permitted year.
    (b) Permitted year defined
      For purposes of this section, the term ''permitted year'' means a
    taxable year which -
        (1) is a year ending December 31, or
        (2) is any other accounting period for which the corporation
      establishes a business purpose to the satisfaction of the
      Secretary.
    For purposes of paragraph (2), any deferral of income to
    shareholders shall not be treated as a business purpose.
 

Sources

    (Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1685;
    amended Pub. L. 98-369, div.  A, title VII, Sec. 721(m), (q), July
    18, 1984, 98 Stat. 969, 970; Pub. L. 99-514, title VIII, Sec.
    806(b), Oct. 22, 1986, 100 Stat. 2363.)
 

Miscellaneous

                              PRIOR PROVISIONS
      A prior section 1378, added Pub. L. 89-389, Sec. 2(a), Apr. 14,
    1966, 80 Stat. 113; amended Pub. L. 91-172, title V, Sec.
    511(c)(4), Dec. 30, 1969, 83 Stat. 638; Pub. L. 94-455, title XIX,
    Sec. 1901(a)(152), (b)(33)(R), Oct. 4, 1976, 90 Stat. 1789, 1802,
    related to tax imposed on certain capital gains, prior to the
    general revision of this subchapter by section 2 of Pub. L. 97-354.
                                 AMENDMENTS
      1986 - Subsec. (a). Pub. L. 99-514, Sec. 806(b)(1), amended
    subsec. (a) generally.  Prior to amendment, subsec. (a) read as
    follows: ''For purposes of this subtitle -
        ''(1) an S corporation shall not change its taxable year to any
      accounting period other than a permitted year, and
        ''(2) no corporation may make an election under section 1362(a)
      for any taxable year unless such taxable year is a permitted
      year.''
      Subsec. (b). Pub. L. 99-514, Sec. 806(b)(2), inserted at end
    ''For purposes of paragraph (2), any deferral of income to
    shareholders shall not be treated as a business purpose.''
      Subsec. (c). Pub. L. 99-514, Sec. 806(b)(3), struck out subsec.
    (c) which required existing S corporations to use permitted year
    after 50-percent shift in ownership.
      1984 - Subsec. (c)(1). Pub. L. 98-369, Sec. 721(m), substituted
    ''which includes December 31, 1982 (or which is an S corporation
    for a taxable year beginning during 1983 by reason of an election
    made on or before October 19, 1982)'' for ''which includes December
    31, 1982''.
      Subsec. (c)(3)(B)(i). Pub. L. 98-369, Sec. 721(q), substituted
    ''who (or whose estate) held'' for ''who held''.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Section 806(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
    title I, Sec. 1008(e)(7), (8), (10), Nov. 10, 1988, 102 Stat. 3441,
    provided that:
      ''(1) In general. - The amendments made by this section (amending
    this section and sections 267, 441, and 706 of this title) shall
    apply to taxable years beginning after December 31, 1986.
      ''(2) Change in accounting period. - In the case of any
    partnership, S corporation, or personal service corporation
    required by the amendments made by this section to change its
    accounting period for the taxpayer's first taxable year beginning
    after December 31, 1986 -
        ''(A) such change shall be treated as initiated by the
      partnership, S corporation, or personal service corporation,
        ''(B) such change shall be treated as having been made with the
      consent of the Secretary, and
        ''(C) with respect to any partner or shareholder of an S
      corporation which is required to include the items from more than
      1 taxable year of the partnership or S corporation in any 1
      taxable year, income in excess of expenses of such partnership or
      corporation for the short taxable year required by such
      amendments shall be taken into account ratably in each of the
      first 4 taxable years beginning after December 31, 1986, unless
      such partner or shareholder elects to include all such income in
      the the (sic) partner's or shareholder's taxable year with or
      within which the partnership's or S corporation's short taxable
      year ends.
    Subparagraph (C) shall apply to a shareholder of an S corporation
    only if such corporation was an S corporation for a taxable year
    beginning in 1986.
      ''(3) Basis, etc. rules -
        ''(A) Basis rule. - The adjusted basis of any partner's
      interest in a partnership or shareholder's stock in an S
      corporation shall be determined as if all of the income to be
      taken into account ratably in the 4 taxable years referred to in
      paragraph (2)(C) were included in gross income for the 1st of
      such taxable years.
        ''(B) Treatment of dispositions. - If any interest in a
      partnership or stock in an S corporation is disposed of before
      the last taxable year in the spread period, all amounts which
      would be included in the gross income of the partner or
      shareholder for subsequent taxable years in the spread period
      under paragraph (2)(C) and attributable to the interest or stock
      disposed of shall be included in gross income for the taxable
      year in which the disposition occurs.  For purposes of the
      preceding sentence, the term 'spread period' means the period
      consisting of the 4 taxable years referred to in paragraph
      (2)(C).''
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by Pub. L. 98-369 effective as if included in
    Subchapter S Revision Act of 1982, Pub. L. 97-354, see section
    721(y)(1) of Pub. L. 98-369, set out as a note under section 1361
    of this title.
                               EFFECTIVE DATE
      Section applicable to taxable years beginning after Dec. 31,
    1982, see section 6(a) of Pub. L. 97-354, set out as a note under
    section 1361 of this title.
               CONSTRUCTION OF SECTION 806 OF PUB. L. 99-514
      Pub. L. 100-647, title I, Sec. 1008(e)(9), Nov. 10, 1988, 102
    Stat. 3441, provided that: ''Nothing in section 806 of the Reform
    Act (Pub. L. 99-514, amending this section and sections 267, 441,
    and 706 of this title and enacting provisions set out above) or in
    any legislative history relating thereto shall be construed as
    requiring the Secretary of the Treasury or his delegate to permit
    an automatic change of a taxable year.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 444, 706 of this title.