Publication 538 - Accounting Periods And Methods (Page 6 of 19) in pdf

Deferral period. The determination of the

partnership’s tax return for the period from Sep-

Form 8752, Required Payment or Refund

deferral period depends on whether the partner-

tember 11, 2002, to September 30, 2002.

Under Section 7519, must be filed each year the

ship, S corporation, or personal service corpora-

section 444 election is in effect, even if no pay-

Example 2. The facts are the same as in

tion is retaining its tax year or adopting or

ment is due. If the required payment is more

Example 1 except that AB begins operations on

changing its tax year with a section 444 election.

than $500 (or the required payment for any prior

October 21, 2002. AB must file Form 8716 by

year was more than $500), the payment must be

Retaining tax year. Generally, a partner-

March 17, 2003, the 15th day of the 6th month of

made when Form 8752 is filed. If the required

ship, S corporation, or personal service corpora-

the tax year for which the election will first be

payment is $500 or less and no payment was

tion can make a section 444 election to retain its

effective.

required in a prior year, Form 8752 must be filed

tax year only if the deferral period of the new tax

showing a zero amount.

year is 3 months or less. This deferral period is

Example 3. B is a corporation that first be-

Form 8752 must be filed and the required

the number of months between the beginning of

comes a personal service corporation for its tax

payment made (or zero amount reported) by

the retained year and the close of the first re-

year beginning September 1, 2002. B qualifies

May 15 of the calendar year following the calen-

quired tax year.

to make a section 444 election to use a Septem-

dar year in which the applicable election year

ber 30 tax year for its tax year beginning Sep-

Adopting or changing tax year. If the part-

begins. Any tax year a section 444 election is in

tember 1, 2002. B must file Form 8716 by

nership, S corporation, or personal service cor-

effect, including the first year, is called an “appli-

December 16, 2002, the due date of the income

poration is adopting or changing to a tax year

cable election year.” For example, if a

tax return for the short period from September 1,

other than its required year, the deferral period is

partnership’s applicable election year begins

2002, to September 30, 2002.

the number of months from the end of the new

July 1, 2002, Form 8752 must be filed by May

tax year to the end of the required tax year. The

15, 2003.

Extension of time for filing. There is an auto-

IRS will allow a section 444 election only if the

matic extension of 12 months to make this elec-

deferral period of the new tax year is less than

Required distribution for personal service

tion. See the form instructions for more

the shorter of:

corporation. A personal service corporation

information.

•

with a section 444 election in effect must dis-

Three months, or

tribute certain amounts to employee-owners by

Effect of election. A partnership or an S cor-

•

The deferral period of the tax year being

poration that makes a section 444 election must

December 31 of each applicable year. If it fails to

changed. This is the tax year immediately

make certain required payments and a personal

make these distributions, it may be required to

preceding the year for which the partner-

service corporation must make certain distribu-

defer certain deductions for amounts paid to

ship, S corporation, or personal service

tions. These issues are discussed later.

owner-employees. The amount deferred is

corporation wishes to make the section

treated as paid or incurred in the following tax

444 election.

Ending the election. The section 444 election

year.

remains in effect until it is terminated. If the

If the partnership, S corporation, or personal

For information on the minimum distribution,

election is terminated, another section 444 elec-

service corporation’s tax year is the same as its

see the instructions for Part I of Schedule H

tion cannot be made for any tax year.

required tax year, the deferral period is zero.

(Form 1120), Section 280H Limitations for a

The election ends when any of the following

Personal Service Corporation (PSC).

applies to the partnership, S corporation, or per-

Example 1. BD Partnership uses a calendar

sonal service corporation.

year, which is also its required tax year. BD

Back-up election. A partnership, S corpora-

•

cannot make a section 444 election because the

The entity changes to its required tax year.

tion, or personal service corporation can file a

deferral period is zero.

•

back-up section 444 election if it requests (or

The entity liquidates.

plans to request) permission to use a business

•

Example 2. E, a newly formed partnership,

The entity becomes a member of a tiered

purpose tax year, discussed later. If the request

began operations on December 1, 2001. E is

structure.

is denied, the back-up section 444 election must

owned by calendar year partners. E wants to

•

be activated (if the partnership, S corporation, or

The IRS determines that the entity willfully

make a section 444 election to adopt a Septem-

personal service corporation otherwise quali-

failed to comply with the required pay-

ber 30 tax year. E’s deferral period for the tax

fies).

ments or distributions.

year beginning December 1, 2001, is 3 months,

the number of months between September 30

Making election. The general rules for

The election will also end if either of the follow-

and December 31.

making a section 444 election, as discussed

ing events occur.

earlier, apply. When filing Form 8716, type or

Making the election. You make a section 444

•

print “BACK-UP ELECTION” at the top of the

An S corporation’s S election is termi-

election by filing Form 8716, Election To Have a

form. However, if Form 8716 is filed on or after

nated. However, if the S corporation im-

Tax Year Other Than a Required Tax Year, with

the date Form 1128 is filed, type or print “FORM

mediately becomes a personal service

the Internal Revenue Service Center where the

1128 BACK-UP ELECTION” at the top of Form

corporation, the personal service corpora-

entity will file its tax return. Form 8716 must be

8716.

tion can continue the section 444 election

filed by the earlier of:

of the S corporation.

Activating election. A partnership or S cor-

•

The due date (not including extensions) of

poration activates its back-up election by filing

A personal service corporation ceases to

the income tax return for the tax year re-

be a personal service corporation. If the

the return required and making the required pay-

sulting from the section 444 election, or

personal service corporation elects to be

ment with Form 8752. The due date for filing

•

an S corporation, the S corporation can

Form 8752 and making the payment is the later

The 15th day of the 6th month of the tax

continue the election of the personal serv-

of the following dates.

year for which the election will be effec-

ice corporation.

•

tive. For this purpose, count the month in

May 15 of the calendar year following the

which the tax year begins, even if it begins

calendar year in which the applicable elec-

Required payment for partnership or S cor-

after the first day of that month.

tion year begins.

poration. A partnership or an S corporation

•

60 days after the partnership or S corpora-

Attach a copy of Form 8716 to Form 1065 or

must make a “required payment” for any tax

tion has been notified by the IRS that the

the appropriate Form 1120 for the first tax year

year:

business year request has been denied.

for which the election is made.

•

The section 444 election is in effect.

•

A personal service corporation activates its

Example 1. AB, a partnership, begins oper-

The required payment for that year (or any

back-up election by filing Form 8716 with its

ations on September 11, 2002, and is qualified

preceding tax year) is more than $500.

original or amended income tax return for the tax

to make a section 444 election to use a Septem-

year in which the election is first effective and

ber 30 tax year for its tax year beginning Sep-

This payment represents the value of the tax

tember 11, 2002. AB must file Form 8716 by

deferral the owners receive by using a tax year

printing on the top of the income tax return,

January 15, 2003, which is the due date of the

different from the required tax year.

“ACTIVATING BACK-UP ELECTION.”

Page 6

Publication 538 - Accounting Periods And Methods Page 6

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