Publication 538 - Accounting Periods And Methods Page 4
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23Figure tax for a short year under the general rule, ex-
Tax withheld from wages. You can claim a credit
plained below. You may then be able to use a relief proce-
against your income tax liability for federal income tax
dure, explained later, and claim a refund of part of the tax
withheld from your wages. Federal income tax is withheld
you paid.
on a calendar year basis. The amount withheld in any cal-
endar year is allowed as a credit for the tax year beginning
General rule. Income tax for a short tax year must be an-
in the calendar year.
nualized. However, self-employment tax is figured on the
actual self-employment income for the short period.
Improper Tax Year
Individuals. An individual must figure income tax for
the short tax year as follows.
Taxpayers that have adopted an improper tax year must
change to a proper tax year. For example, if a taxpayer
1. Determine your adjusted gross income (AGI) for the
began business on March 15 and adopted a tax year end-
short tax year and then subtract your actual itemized
ing on March 14 (a period of exactly 12 months), this
deductions for the short tax year. You must itemize
would be an improper tax year. See Accounting Periods,
deductions when you file a short period tax return.
earlier, for a description of permissible tax years.
2. Multiply the dollar amount of your exemptions by the
To change to a proper tax year, you must do one of the
number of months in the short tax year and divide the
following.
result by 12.
If you are requesting a change to a calendar tax year,
3. Subtract the amount in (2) from the amount in (1). The
file an amended income tax return based on a calen-
result is your modified taxable income.
dar tax year that corrects the most recently filed tax re-
4. Multiply the modified taxable income in (3) by 12, then
turn that was filed on the basis of an improper tax
divide the result by the number of months in the short
year. Attach a completed Form 1128 to the amended
tax year. The result is your annualized income.
tax return. Write “FILED UNDER REV. PROC. 85-15”
at the top of Form 1128 and file the forms with the In-
5. Figure the total tax on your annualized income using
ternal Revenue Service Center where you filed your
the appropriate tax rate schedule.
original return.
6. Multiply the total tax by the number of months in the
If you are requesting a change to a fiscal tax year, file
short tax year and divide the result by 12. The result is
Form 1128 in accordance with the form instructions to
your tax for the short tax year.
request IRS approval for the change.
Relief procedure. Individuals and corporations can use
Change in Tax Year
a relief procedure to figure the tax for the short tax year. It
may result in less tax. Under this procedure, the tax is fig-
ured by two separate methods. If the tax figured under
Generally, you must file Form 1128 to request IRS appro-
both methods is less than the tax figured under the gen-
val to change your tax year. See the Instructions for Form
eral rule, you can file a claim for a refund of part of the tax
1128 for exceptions. If you qualify for an automatic appro-
you paid. For more information, see section 443(b)(2) of
val request, a user fee is not required.
the Internal Revenue Code and the related Regulations.
Individuals
Alternative minimum tax. To figure the alternative mini-
mum tax (AMT) due for a short tax year:
Generally, individuals must adopt the calendar year as
1. Figure the annualized alternative minimum taxable in-
their tax year. An individual can adopt a fiscal year if the
come (AMTI) for the short tax period by completing
individual maintains his or her books and records on the
the following steps.
basis of the adopted fiscal year.
a. Multiply the AMTI by 12.
Partnerships,
b. Divide the result by the number of months in the
S Corporations,
short tax year.
and Personal Service Corporations
2. Multiply the annualized AMTI by the appropriate rate
(PSCs)
of tax under section 55(b)(1) of the Internal Revenue
Code. The result is the annualized AMT.
Generally, partnerships, S corporations (including electing
3. Multiply the annualized AMT by the number of months
S corporations), and PSCs must use a required tax year.
in the short tax year and divide the result by 12.
A required tax year is a tax year that is required under the
For information on the AMT for individuals, see the In-
Internal Revenue Code and Income Tax Regulations. The
structions for Form 6251, Alternative Minimum Tax–Indi-
entity does not have to use the required tax year if it re-
viduals. For information on the AMT for corporations, see
ceives IRS approval to use another permitted tax year or
the Instructions for Form 4626.
makes an election under section 444 of the Internal Reve-
nue Code (discussed later). The following discussions
Page 4
Publication 538 (December 2016)
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