Publication 538 - Accounting Periods And Methods (Page 3 of 18) in pdf

2) Change your accounting period.

2) Multiply the dollar amount of your exemp-

(regardless of the number of days in the calen-

tions by the number of months in the short

dar year) instead of 12 months and the number

Tax on a short period tax return is figured differ-

tax year and divide the result by 12.

of days in the short tax year instead of the

ently for each situation.

number of months.

3) Subtract the amount in (2) from the

amount in (1). This is your modified taxa-

Relief procedure. Individuals and corpora-

Not in Existence Entire Year

ble income.

tions can use a relief procedure to figure the tax

for the short tax year. It may result in less tax.

4) Multiply the modified taxable income in (3)

Even if you (a taxable entity) were not in exis-

Under this procedure, the tax is figured by two

by 12, then divide the result by the number

tence for the entire year, a tax return is required

separate methods. If the tax figured under both

of months in the short tax year. This is

for the time you were in existence. Require-

methods is less than the tax figured under the

your annualized income.

ments for filing the return and figuring the tax are

general rule, you can file a claim for a refund of

generally the same as the requirements for a

5) Figure the total tax on your annualized in-

part of the tax you paid. For more information,

return for a full tax year (12 months) ending on

come using the appropriate tax rate sched-

see section 443(b)(2).

the last day of the short tax year.

ule.

Alternative minimum tax. To figure the alter-

6) Multiply the total tax by the number of

Example 1. Corporation X was organized

native minimum tax (AMT) due for a short tax

months in the short tax year and divide the

on July 1, 2000. It elected the calendar year as

year:

result by 12. This is your tax for the short

its tax year and its first tax return was due March

tax year.

16, 2001. This short period return will cover the

1) Figure the annualized alternative minimum

period from July 1, 2000, through December 31,

taxable income (AMTI) for the short tax

2000.

period by doing the following.

Example. Mike and Sara Smith have an ad-

justed gross income of $48,000 for their short

a) Multiply the AMTI by 12.

Example 2. A calendar year corporation

tax year. Their itemized deductions for January

dissolved on July 23, 2001. Its final return is due

1 through September 30 total $12,400 and they

b) Divide the result by the number of

by October 15, 2001, and it will cover the short

can claim exemptions for themselves, and their

months in the short tax year.

period from January 1, 2001, to July 23, 2001.

two children. Each exemption is $2,800. They

figure the tax on their joint return for that period

2) Multiply the annualized AMTI by the appro-

Example 3. Partnership YZ was formed on

as follows.

priate rate of tax under section 55(b)(1).

September 4, 2000, and elected to use a fiscal

The result is the annualized AMT.

year ending November 30. Partnership YZ must

1) $48,000 − $12,400 = $35,600

3) Multiply the annualized AMT by the num-

file its first tax return by March 15, 2001. It will

2) $2,800 × 4 × 9/12 = $8,400

ber of months in the short tax year and

cover the short period from September 4, 2000,

divide the result by 12.

to November 30, 2000.

3) $35,600 − $8,400 = $27,200 (modified tax-

able income)

For information on the alternative minimum

Death of individual. When an individual dies,

tax for individuals, see the instructions for Form

4) $27,200 × 12/9 = $36,267 (annualized in-

a tax return must be filed for the decedent by the

6251. For information on the alternative mini-

come)

15th day of the 4th month after the close of the

mum tax for corporations, see Publication 542,

individual’s regular tax year. The decedent’s fi-

5) Tax on $36,267 = $5,441 (from 2000 tax

or the instructions to Form 4626, Alternative

nal return will be a short period tax return unless

rate schedule)

Minimum Tax Corporations.

he or she dies on the last day of the regular tax

6) $5,441 × 9/12 = $4,081 (tax for short tax

year.

Tax withheld from wages. You can take a

year)

credit against your income tax liability for federal

Example. Agnes Green was a single, calen-

income tax withheld from your wages. Federal

Corporations. A corporation figures tax for

dar year taxpayer. She died on March 6, 2001.

income tax is withheld on a calendar year basis.

the short tax year under the general rule de-

Her final tax return must be filed by April 15,

The amount withheld in any calendar year is

scribed earlier for individuals except there is no

2002. It will cover the short period from January

allowed as a credit for the tax year beginning in

adjustment for personal exemptions.

1, 2001, to March 6, 2001.

the calendar year.

Example. Because a calendar year corpo-

Improper Tax Year

Figuring Tax for Short Year

ration changed its tax year, it must file a short

period tax return for the 6-month period ending

A calendar year is a tax year of 12 months that

If the IRS approves a change in your tax year or

June 30, 2000. For the short tax year, it had

ends on December 31 and a fiscal year is a tax

you are required to change your tax year, you

income of $40,000 and no deductions. The

year of 12 months that ends on the last day of

must figure the tax and file your return for the

corporation’s annualized income is $80,000

any month other than December. A 52 – 53 week

($40,000 × 12/6). The tax

short tax period. The short tax period begins on

on $80,000 is

tax year is also a fiscal year, but may not end on

the first day after the close of your old tax year

$15,450. The tax for the short tax year is $7,725

the last day of a month. If you begin business

($15,450 × 6/12).

and ends on the day before the first day of your

operations on a day other than the first day of a

new tax year.

52-53 week tax year. If you change the

calendar month and adopt a tax year of exactly

You figure tax for a short year under the

month in which your 52-53 tax year ends, you

12 months from the date operations began, you

general rule, explained next. You may then be

must file a return for the short tax year if it covers

will have adopted an improper tax year. You do

able to use a relief procedure, explained later,

more than 6 but fewer than 359 days.

not meet the requirements for a calendar or

and claim a refund of part of the tax you paid.

fiscal tax year.

If the short period created by the change is

To change to a proper tax year, you must do

359 days or more, treat it as a full tax year. If the

General rule. Income tax for a short tax year is

one of the following.

short period created is 6 days or fewer, it is not a

figured on an annual basis. However, self-em-

separate tax year. Include it as part of the follow-

ployment tax is figured on the actual self-em-

1) File an amended income tax return based

ing year.

ployment income for the short period.

on a calendar year, if you meet the require-

For example, if you use a calendar year and

ments of Revenue Procedure 85 – 15 in Cu-

Individuals. An individual must figure in-

the IRS approves your change to a 52-53 week

mulative Bulletin 1985 – 1.

come tax for the short tax year as follows.

tax year ending on the Monday closest to Sep-

Attach a completed Form 1128 to the

tember 30, you must file a return for the short

1) Determine your adjusted gross income for

amended tax return. Write “FILED UNDER

period from January 1 to September 30.

the short tax year and then subtract your

REV. PROC. 85 – 15” at the top of Form

actual itemized deductions for the short tax

Figure the tax for the short tax year

1128 and file the forms with the Internal

year. (You must itemize deductions when

shown previously, except that you prorate on a

Revenue Service Center where you filed

you file a short period tax return.)

daily basis, rather than monthly. Use 365 days

your original return.

Page 3

Publication 538 - Accounting Periods And Methods Page 3

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