§441 — Period for computation of taxable income

Statute Text — 26 U.S.C. §441

Treasury Regulations

• Treas. Reg. §1.441-0Table of contents Show full text ▾ Collapse ▴

  This section lists the captions contained in §§ 1.441-1 through 1.441-4 as follows:

  (a) Computation of taxable income.

  (1) In general.

  (2) Length of taxable year.

  (b) General rules and definitions.

  (1) Taxable year.

  (1) Required taxable year.

  (i) In general.

  (ii) Exceptions.

  (A) 52-53-week taxable years.

  (B) Partnerships, S corporations, and PSCs.

  (C) Specified foreign corporations.

  (3) Annual accounting period.

  (4) Calendar year.

  (5) Fiscal year.

  (i) Definition.

  (ii) Recognition.

  (6) Grandfathered fiscal year.

  (7) Books.

  (8) Taxpayer.

  (c) Adoption of taxable year.

  (1) In general.

  (2) Approval required.

  (i) Taxpayers with required taxable years.

  (ii) Taxpayers without books.

  (d) Retention of taxable year.

  (e) Change of taxable year.

  (f) Obtaining approval of the Commissioner or making a section 444 election.

  (a) In general.

  (1) Election.

  (2) Effect.

  (3) Eligible taxpayer.

  (4) Example.

  (b) Procedures to elect a 52-53-week taxable year.

  (1) Adoption of a 52-53-week taxable year.

  (i) In general.

  (ii) Filing requirement.

  (2) Change to (or from) a 52-53-week taxable year.

  (i) In general.

  (ii) Special rules for short period required to effect the change.

  (3) Examples.

  (c) Application of effective dates.

  (1) In general.

  (2) Examples.

  (3) Changes in tax rates.

  (4) Examples.

  (d) Computation of taxable income.

  (e) Treatment of taxable years ending with reference to the same calendar month.

  (1) Pass-through entities.

  (2) Personal service corporations and employee-owners.

  (3) Definitions.

  (i) Pass-through entity.

  (ii) Owner of a pass-through entity.

  (4) Examples.

  (5) Transition rule.

  (a) Taxable year.

  (1) Required taxable year.

  (2) Exceptions.

  (b) Adoption, change, or retention of taxable year.

  (1) Adoption of taxable year.

  (2) Change in taxable year.

  (3) Retention of taxable year.

  (4) Procedures for obtaining approval or making a section 444 election.

  (5) Examples.

  (c) Personal service corporation defined.

  (1) In general.

  (2) Testing period.

  (i) In general.

  (ii) New corporations.

  (3) Examples.

  (d) Performance of personal services.

  (1) Activities described in section 448(d)(2)(A).

  (2) Activities not described in section 448(d)(2)(A).

  (e) Principal activity.

  (1) General rule.

  (2) Compensation cost.

  (i) Amounts included.

  (ii) Amounts excluded.

  (3) Attribution of compensation cost to personal service activity.

  (i) Employees involved only in the performance of personal services.

  (ii) Employees involved only in activities that are not treated as the performance of personal services.

  (iii) Other employees.

  (A) Compensation cost attributable to personal service activity.

  (B) Compensation cost not attributable to personal service activity.

  (f) Services substantially performed by employee-owners.

  (1) General rule.

  (2) Compensation cost attributable to personal services.

  (3) Examples.

  (g) Employee-owner defined.

  (1) General rule.

  (2) Special rule for independent contractors who are owners.

  (h) Special rules for affiliated groups filing consolidated returns.

  (1) In general.

  (2) Examples.

• Treas. Reg. §1.441-0(a)Taxable year. Show full text ▾ Collapse ▴

  Taxable year.

  (1) Required taxable year.

  (2) Exceptions.

• Treas. Reg. §1.441-0(b)Adoption, change, or retention of taxable year. Show full text ▾ Collapse ▴

  Adoption, change, or retention of taxable year.

  (1) Adoption of taxable year.

  (2) Change in taxable year.

  (3) Retention of taxable year.

  (4) Procedures for obtaining approval or making a section 444 election.

  (5) Examples.

• Treas. Reg. §1.441-0(c)Personal service corporation defined. Show full text ▾ Collapse ▴

  Personal service corporation defined.

  (1) In general.

  (2) Testing period.

• Treas. Reg. §1.441-0(d)Performance of personal services. Show full text ▾ Collapse ▴

  Performance of personal services.

  (1) Activities described in section 448(d)(2)(A).

  (2) Activities not described in section 448(d)(2)(A).

• Treas. Reg. §1.441-0(e)Principal activity. Show full text ▾ Collapse ▴

  Principal activity.

  (1) General rule.

  (2) Compensation cost.

• Treas. Reg. §1.441-0(f)Services substantially performed by employee-owners. Show full text ▾ Collapse ▴

  Services substantially performed by employee-owners.

  (1) General rule.

  (2) Compensation cost attributable to personal services.

  (3) Examples.

• Treas. Reg. §1.441-0(g)Employee-owner defined. Show full text ▾ Collapse ▴

  Employee-owner defined.

  (1) General rule.

  (2) Special rule for independent contractors who are owners.

• Treas. Reg. §1.441-0(h)Special rules for affiliated groups filing consolidated returns. Show full text ▾ Collapse ▴

  Special rules for affiliated groups filing consolidated returns.

  (1) In general.

  (2) Examples.

• Treas. Reg. §1.441-0(i)Employees involved only in the performance of personal services. Show full text ▾ Collapse ▴

  Employees involved only in the performance of personal services.

  (ii) Employees involved only in activities that are not treated as the performance of personal services.

  (iii) Other employees.

  (A) Compensation cost attributable to personal service activity.

  (B) Compensation cost not attributable to personal service activity.

• Treas. Reg. §1.441-1Period for computation of taxable income Show full text ▾ Collapse ▴

  (a) Computation of taxable income—(1) In general. Taxable income must be computed and a return must be made for a period known as the taxable year. For rules relating to methods of accounting, the taxable year for which items of gross income are included and deductions are taken, inventories, and adjustments, see parts II and III (section 446 and following), subchapter E, chapter 1 of the Internal Revenue Code, and the regulations thereunder.

  (2) Length of taxable year. Except as otherwise provided in the Internal Revenue Code and the regulations thereunder (e.g., § 1.441-2 regarding 52-53-week taxable years), a taxable year may not cover a period of more than 12 calendar months.

  (b) General rules and definitions. The general rules and definitions in this paragraph (b) apply for purposes of sections 441 and 442 and the regulations thereunder.

  (1) Taxable year. Taxable year means—

  (i) The period for which a return is made, if a return is made for a period of less than 12 months (short period). See section 443 and the regulations thereunder;

  (ii) Except as provided in paragraph (b)(1)(i) of this section, the taxpayer's required taxable year (as defined in paragraph (b)(2) of this section), if applicable;

  (iii) Except as provided in paragraphs (b)(1)(i) and (ii) of this section, the taxpayer's annual accounting period (as defined in paragraph (b)(3) of this section), if it is a calendar year or a fiscal year; or

  (iv) Except as provided in paragraphs (b)(1)(i) and (ii) of this section, the calendar year, if the taxpayer keeps no books, does not have an annual accounting period, or has an annual accounting period that does not qualify as a fiscal year.

  (2) Required taxable year—(i) In general. Certain taxpayers must use the particular taxable year that is required under the Internal Revenue Code and the regulations thereunder (the required taxable year). For example, the required taxable year is—

  (A) [Reserved]

  (B) In the case of a personal service corporation (PSC), the taxable year determined under section 441(i) and § 1.441-3;

  (C) In the case of a nuclear decommissioning fund, the taxable year determined under § 1.468A-4(c)(1);

  (D) In the case of a designated settlement fund or a qualified settlement fund, the taxable year determined under § 1.468B-2(j);

  (E) In the case of a common trust fund, the taxable year determined under section 584(i);

  (F) In the case of certain trusts, the taxable year determined under section 644;

  (G) In the case of a partnership, the taxable year determined under section 706 and § 1.706-1;

  (H) In the case of an insurance company, the taxable year determined under section 843 and § 1.1502-76(a)(2);

  (I) In the case of a real estate investment trust, the taxable year determined under section 859;

  (J) In the case of a real estate mortgage investment conduit, the taxable year determined under section 860D(a)(5) and § 1.860D-1(b)(6);

  (K) In the case of a specified foreign corporation, the taxable year determined under section 898(c)(1)(A);

  (L) In the case of an S corporation, the taxable year determined under section 1378 and § 1.1378-1; or

  (M) In the case of a member of an affiliated group that makes a consolidated return, the taxable year determined under § 1.1502-76.

  (ii) Exceptions. Notwithstanding paragraph (b)(2)(i) of this section, the following taxpayers may have a taxable year other than their required taxable year:

  (A) 52-53-week taxable years. Certain taxpayers may elect to use a 52-53-week taxable year that ends with reference to their required taxable year. See, for example, §§ 1.441-3 (PSCs), 1.706-1 (partnerships), 1.1378-1 (S corporations), and 1.1502-76(a)(1) (members of a consolidated group).

  (B) Partnerships, S corporations, and PSCs. A partnership, S corporation, or PSC may use a taxable year other than its required taxable year if the taxpayer elects to use a taxable year other than its required taxable year under section 444, elects a 52-53-week taxable year that ends with reference to its required taxable year as provided in paragraph (b)(2)(ii)(A) of this section or to a taxable year elected under section 444, or establishes a business purpose to the satisfaction of the Commissioner under section 442 (such as a grandfathered fiscal year).

  (C) Specified foreign corporations. A specified foreign corporation (as defined in section 898(b)) may use a taxable year other than its required taxable year if it elects a 52-53-week taxable year that ends with reference to its required taxable year as provided in paragraph (b)(2)(ii)(A) of this section or makes a one-month deferral election under section 898(c)(1)(B).

  (3) Annual accounting period. Annual accounting period means the annual period (calendar year or fiscal year) on the basis of which the taxpayer regularly computes its income in keeping its books.

  (4) Calendar year. Calendar year means a period of 12 consecutive months ending on December 31. A taxpayer who has not established a fiscal year must make its return on the basis of a calendar year.

  (5) Fiscal year—(i) Definition. Fiscal year means—

  (A) A period of 12 consecutive months ending on the last day of any month other than December; or

  (B) A 52-53-week taxable year, if such period has been elected by the taxpayer. See § 1.441-2.

  (ii) Recognition. A fiscal year will be recognized only if the books of the taxpayer are kept in accordance with such fiscal year.

  (6) Grandfathered fiscal year. Grandfathered fiscal year means a fiscal year (other than a year that resulted in a three month or less deferral of income) that a partnership or an S corporation received permission to use on or after July 1, 1974, by a letter ruling (i.e., not by automatic approval).

  (7) Books. Books include the taxpayer's regular books of account and such other records and data as may be necessary to support the entries on the taxpayer's books and on the taxpayer's return, as for example, a reconciliation of any difference between such books and the taxpayer's return. Records that are sufficient to reflect income adequately and clearly on the basis of an annual accounting period will be regarded as the keeping of books. See section 6001 and the regulations thereunder for rules relating to the keeping of books and records.

  (8) Taxpayer. Taxpayer has the same meaning as the term person as defined in section 7701(a)(1) (e.g., an individual, trust, estate, partnership, association, or corporation) rather than the meaning of the term taxpayer as defined in section 7701(a)(14) (any person subject to tax).

  (c) Adoption of taxable year—(1) In general. Except as provided in paragraph (c)(2) of this section, a new taxpayer may adopt any taxable year that satisfies the requirements of section 441 and the regulations thereunder without the approval of the Commissioner. A taxable year of a new taxpayer is adopted by filing its first Federal income tax return using that taxable year. The filing of an application for automatic extension of time to file a Federal income tax return (e.g., Form 7004, “Application for Automatic Extension of Time to File Corporation Income Tax Return”), the filing of an application for an employer identification number (i.e., Form SS-4, “Application for Employer Identification Number”), or the payment of estimated taxes, for a particular taxable year do not constitute an adoption of that taxable year.

  (2) Approval required—(i) Taxpayers with required taxable years. A newly-formed partnership, S corporation, or PSC that wants to adopt a taxable year other than its required taxable year, a taxable year elected under section 444, or a 52-53-week taxable year that ends with reference to its required taxable year or a taxable year elected under section 444 must establish a business purpose and obtain the approval of the Commissioner under section 442.

  (ii) Taxpayers without books. A taxpayer that must use a calendar year under section 441(g) and paragraph (f) of this section may not adopt a fiscal year without obtaining the approval of the Commissioner.

  (d) Retention of taxable year. In certain cases, a partnership, S corporation, electing S corporation, or PSC will be required to change its taxable year unless it obtains the approval of the Commissioner under section 442, or makes an election under section 444, to retain its current taxable year. For example, a corporation using a June 30 fiscal year that either becomes a PSC or elects to be an S corporation and, as a result, is required to use the calendar year under section 441(i) or 1378, respectively, must obtain the approval of the Commissioner to retain its current fiscal year. Similarly, a partnership using a taxable year that corresponds to its required taxable year must obtain the approval of the Commissioner to retain such taxable year if its required taxable year changes as a result of a change in ownership. However, a partnership that previously established a business purpose to the satisfaction of the Commissioner to use a taxable year is not required to obtain the approval of the Commissioner if its required taxable year changes as a result of a change in ownership.

  (e) Change of taxable year. Once a taxpayer has adopted a taxable year, such taxable year must be used in computing taxable income and making returns for all subsequent years unless the taxpayer obtains approval from the Commissioner to make a change or the taxpayer is otherwise authorized to change without the approval of the Commissioner under the Internal Revenue Code (e.g., section 444 or 859) or the regulations thereunder.

  (f) Obtaining approval of the Commissioner or making a section 444 election. See § 1.442-1(b) for procedures for obtaining approval of the Commissioner (automatically or otherwise) to adopt, change, or retain an annual accounting period. See §§ 1.444-1T and 1.444-2T for qualifications, and 1.444-3T for procedures, for making an election under section 444.

• Treas. Reg. §1.441-1(a)Computation of taxable income—(1) In general. Show full text ▾ Collapse ▴

  Computation of taxable income—(1) In general. Taxable income must be computed and a return must be made for a period known as the taxable year. For rules relating to methods of accounting, the taxable year for which items of gross income are included and deductions are taken, inventories, and adjustments, see parts II and III (section 446 and following), subchapter E, chapter 1 of the Internal Revenue Code, and the regulations thereunder.

  (2) Length of taxable year. Except as otherwise provided in the Internal Revenue Code and the regulations thereunder (e.g., § 1.441-2 regarding 52-53-week taxable years), a taxable year may not cover a period of more than 12 calendar months.

• Treas. Reg. §1.441-1(b)General rules and definitions. Show full text ▾ Collapse ▴

  General rules and definitions. The general rules and definitions in this paragraph (b) apply for purposes of sections 441 and 442 and the regulations thereunder.

  (1) Taxable year. Taxable year means—

• Treas. Reg. §1.441-1(c)Adoption of taxable year—(1) In general. Show full text ▾ Collapse ▴

  Adoption of taxable year—(1) In general. Except as provided in paragraph (c)(2) of this section, a new taxpayer may adopt any taxable year that satisfies the requirements of section 441 and the regulations thereunder without the approval of the Commissioner. A taxable year of a new taxpayer is adopted by filing its first Federal income tax return using that taxable year. The filing of an application for automatic extension of time to file a Federal income tax return (e.g., Form 7004, “Application for Automatic Extension of Time to File Corporation Income Tax Return”), the filing of an application for an employer identification number (i.e., Form SS-4, “Application for Employer Identification Number”), or the payment of estimated taxes, for a particular taxable year do not constitute an adoption of that taxable year.

  (2) Approval required—(i) Taxpayers with required taxable years. A newly-formed partnership, S corporation, or PSC that wants to adopt a taxable year other than its required taxable year, a taxable year elected under section 444, or a 52-53-week taxable year that ends with reference to its required taxable year or a taxable year elected under section 444 must establish a business purpose and obtain the approval of the Commissioner under section 442.

  (ii) Taxpayers without books. A taxpayer that must use a calendar year under section 441(g) and paragraph (f) of this section may not adopt a fiscal year without obtaining the approval of the Commissioner.

• Treas. Reg. §1.441-1(d)Retention of taxable year. Show full text ▾ Collapse ▴

  Retention of taxable year. In certain cases, a partnership, S corporation, electing S corporation, or PSC will be required to change its taxable year unless it obtains the approval of the Commissioner under section 442, or makes an election under section 444, to retain its current taxable year. For example, a corporation using a June 30 fiscal year that either becomes a PSC or elects to be an S corporation and, as a result, is required to use the calendar year under section 441(i) or 1378, respectively, must obtain the approval of the Commissioner to retain its current fiscal year. Similarly, a partnership using a taxable year that corresponds to its required taxable year must obtain the approval of the Commissioner to retain such taxable year if its required taxable year changes as a result of a change in ownership. However, a partnership that previously established a business purpose to the satisfaction of the Commissioner to use a taxable year is not required to obtain the approval of the Commissioner if its required taxable year changes as a result of a change in ownership.

• Treas. Reg. §1.441-1(e)Change of taxable year. Show full text ▾ Collapse ▴

  Change of taxable year. Once a taxpayer has adopted a taxable year, such taxable year must be used in computing taxable income and making returns for all subsequent years unless the taxpayer obtains approval from the Commissioner to make a change or the taxpayer is otherwise authorized to change without the approval of the Commissioner under the Internal Revenue Code (e.g., section 444 or 859) or the regulations thereunder.

• Treas. Reg. §1.441-1(f)Obtaining approval of the Commissioner or making a section 444 election. Show full text ▾ Collapse ▴

  Obtaining approval of the Commissioner or making a section 444 election. See § 1.442-1(b) for procedures for obtaining approval of the Commissioner (automatically or otherwise) to adopt, change, or retain an annual accounting period. See §§ 1.444-1T and 1.444-2T for qualifications, and 1.444-3T for procedures, for making an election under section 444.

• Treas. Reg. §1.441-1(i)The period for which a return is made, if a return is made for a period of less than 12 months (short period). Show full text ▾ Collapse ▴

  The period for which a return is made, if a return is made for a period of less than 12 months (short period). See section 443 and the regulations thereunder;

  (ii) Except as provided in paragraph (b)(1)(i) of this section, the taxpayer's required taxable year (as defined in paragraph (b)(2) of this section), if applicable;

  (iii) Except as provided in paragraphs (b)(1)(i) and (ii) of this section, the taxpayer's annual accounting period (as defined in paragraph (b)(3) of this section), if it is a calendar year or a fiscal year; or

  (iv) Except as provided in paragraphs (b)(1)(i) and (ii) of this section, the calendar year, if the taxpayer keeps no books, does not have an annual accounting period, or has an annual accounting period that does not qualify as a fiscal year.

  (2) Required taxable year—(i) In general. Certain taxpayers must use the particular taxable year that is required under the Internal Revenue Code and the regulations thereunder (the required taxable year). For example, the required taxable year is—

  (A) [Reserved]

  (B) In the case of a personal service corporation (PSC), the taxable year determined under section 441(i) and § 1.441-3;

  (C) In the case of a nuclear decommissioning fund, the taxable year determined under § 1.468A-4(c)(1);

  (D) In the case of a designated settlement fund or a qualified settlement fund, the taxable year determined under § 1.468B-2(j);

  (E) In the case of a common trust fund, the taxable year determined under section 584(i);

  (F) In the case of certain trusts, the taxable year determined under section 644;

  (G) In the case of a partnership, the taxable year determined under section 706 and § 1.706-1;

  (H) In the case of an insurance company, the taxable year determined under section 843 and § 1.1502-76(a)(2);

  (I) In the case of a real estate investment trust, the taxable year determined under section 859;

  (J) In the case of a real estate mortgage investment conduit, the taxable year determined under section 860D(a)(5) and § 1.860D-1(b)(6);

  (K) In the case of a specified foreign corporation, the taxable year determined under section 898(c)(1)(A);

  (L) In the case of an S corporation, the taxable year determined under section 1378 and § 1.1378-1; or

  (M) In the case of a member of an affiliated group that makes a consolidated return, the taxable year determined under § 1.1502-76.

  (ii) Exceptions. Notwithstanding paragraph (b)(2)(i) of this section, the following taxpayers may have a taxable year other than their required taxable year:

  (A) 52-53-week taxable years. Certain taxpayers may elect to use a 52-53-week taxable year that ends with reference to their required taxable year. See, for example, §§ 1.441-3 (PSCs), 1.706-1 (partnerships), 1.1378-1 (S corporations), and 1.1502-76(a)(1) (members of a consolidated group).

  (B) Partnerships, S corporations, and PSCs. A partnership, S corporation, or PSC may use a taxable year other than its required taxable year if the taxpayer elects to use a taxable year other than its required taxable year under section 444, elects a 52-53-week taxable year that ends with reference to its required taxable year as provided in paragraph (b)(2)(ii)(A) of this section or to a taxable year elected under section 444, or establishes a business purpose to the satisfaction of the Commissioner under section 442 (such as a grandfathered fiscal year).

  (C) Specified foreign corporations. A specified foreign corporation (as defined in section 898(b)) may use a taxable year other than its required taxable year if it elects a 52-53-week taxable year that ends with reference to its required taxable year as provided in paragraph (b)(2)(ii)(A) of this section or makes a one-month deferral election under section 898(c)(1)(B).

  (3) Annual accounting period. Annual accounting period means the annual period (calendar year or fiscal year) on the basis of which the taxpayer regularly computes its income in keeping its books.

  (4) Calendar year. Calendar year means a period of 12 consecutive months ending on December 31. A taxpayer who has not established a fiscal year must make its return on the basis of a calendar year.

  (5) Fiscal year—(i) Definition. Fiscal year means—

  (A) A period of 12 consecutive months ending on the last day of any month other than December; or

  (B) A 52-53-week taxable year, if such period has been elected by the taxpayer. See § 1.441-2.

  (ii) Recognition. A fiscal year will be recognized only if the books of the taxpayer are kept in accordance with such fiscal year.

  (6) Grandfathered fiscal year. Grandfathered fiscal year means a fiscal year (other than a year that resulted in a three month or less deferral of income) that a partnership or an S corporation received permission to use on or after July 1, 1974, by a letter ruling (i.e., not by automatic approval).

  (7) Books. Books include the taxpayer's regular books of account and such other records and data as may be necessary to support the entries on the taxpayer's books and on the taxpayer's return, as for example, a reconciliation of any difference between such books and the taxpayer's return. Records that are sufficient to reflect income adequately and clearly on the basis of an annual accounting period will be regarded as the keeping of books. See section 6001 and the regulations thereunder for rules relating to the keeping of books and records.

  (8) Taxpayer. Taxpayer has the same meaning as the term person as defined in section 7701(a)(1) (e.g., an individual, trust, estate, partnership, association, or corporation) rather than the meaning of the term taxpayer as defined in section 7701(a)(14) (any person subject to tax).

• Treas. Reg. §1.441-2Election of taxable year consisting of 52-53 weeks Show full text ▾ Collapse ▴

  (a) In general—(1) Election. An eligible taxpayer may elect to compute its taxable income on the basis of a fiscal year that—

  (i) Varies from 52 to 53 weeks;

  (ii) Ends always on the same day of the week; and

  (iii) Ends always on—

  (A) Whatever date this same day of the week last occurs in a calendar month; or

  (B) Whatever date this same day of the week falls that is the nearest to the last day of the calendar month.

  (2) Effect. In the case of a taxable year described in paragraph (a)(1)(iii)(A) of this section, the year will always end within the month and may end on the last day of the month, or as many as six days before the end of the month. In the case of a taxable year described in paragraph (a)(1)(iii)(B) of this section, the year may end on the last day of the month, or as many as three days before or three days after the last day of the month.

  (3) Eligible taxpayer. A taxpayer is eligible to elect a 52-53-week taxable year if such fiscal year would otherwise satisfy the requirements of section 441 and the regulations thereunder. For example, a taxpayer that is required to use a calendar year under § 1.441-1(b)(2)(i)(D) is not an eligible taxpayer.

  (4) Example. The provisions of this paragraph (a) are illustrated by the following example:

  (b) Procedures to elect a 52-53-week taxable year—(1) Adoption of a 52-53-week taxable year—(i) In general. A new eligible taxpayer elects a 52-53-week taxable year by adopting such year in accordance with § 1.441-1(c). A newly-formed partnership, S corporation or personal service corporation (PSC) may adopt a 52-53-week taxable year without the approval of the Commissioner if such year ends with reference to either the taxpayer's required taxable year (as defined in § 1.441-1(b)(2)) or the taxable year elected under section 444. See §§ 1.441-3, 1.706-1, and 1.1378-1. Similarly, a newly-formed specified foreign corporation (as defined in section 898(b)) may adopt a 52-53-week taxable year if such year ends with reference to the taxpayer's required taxable year, or, if the one-month deferral election under section 898(c)(1)(B) is made, with reference to the month immediately preceding the required taxable year. See § 1.1502-76(a)(1) for special rules regarding subsidiaries adopting 52-53-week taxable years.

  (ii) Filing requirement. A taxpayer adopting a 52-53-week taxable year must file with its Federal income tax return for its first taxable year a statement containing the following information—

  (A) The calendar month with reference to which the 52-53-week taxable year ends;

  (B) The day of the week on which the 52-53-week taxable year always will end; and

  (C) Whether the 52-53-week taxable year will always end on the date on which that day of the week last occurs in the calendar month, or on the date on which that day of the week falls that is nearest to the last day of that calendar month.

  (2) Change to (or from) a 52-53-week taxable year—(i) In general. An election of a 52-53-week taxable year by an existing eligible taxpayer with an established taxable year is treated as a change in annual accounting period that requires the approval of the Commissioner in accordance with § 1.442-1. Thus, a taxpayer must obtain approval to change from its current taxable year to a 52-53-week taxable year, even if such 52-53-week taxable year ends with reference to the same calendar month. Similarly, a taxpayer must obtain approval to change from a 52-53-week taxable year, or to change from one 52-53-week taxable year to another 52-53-week taxable year. However, a taxpayer may obtain approval for 52-53-week taxable year changes automatically to the extent provided in administrative procedures published by the Commissioner. See § 1.442-1(b) for procedures for obtaining such approval.

  (ii) Special rules for the short period required to effect the change. If a change to or from a 52-53-week taxable year results in a short period (within the meaning of § 1.443-1(a)) of 359 days or more, or six days or less, the tax computation under § 1.443-1(b) does not apply. If the short period is 359 days or more, it is treated as a full taxable year. If the short period is six days or less, such short period is not a separate taxable year but instead is added to and deemed a part of the following taxable year. (In the case of a change to or from a 52-53-week taxable year not involving a change of the month with reference to which the taxable year ends, the tax computation under § 1.443-1(b) does not apply because the short period will always be 359 days or more, or six days or less.) In the case of a short period which is more than six days and less than 359 days, taxable income for the short period is placed on an annual basis for purposes of § 1.443-1(b) by multiplying such income by 365 and dividing the result by the number of days in the short period. In such case, the tax for the short period is the same part of the tax computed on such income placed on an annual basis as the number of days in the short period is of 365 days (unless § 1.443-1(b)(2), relating to the alternative tax computation, applies). For an adjustment in deduction for personal exemption, see § 1.443-1(b)(1)(v).

  (3) Examples. The following examples illustrate paragraph (b)(2)(ii) of this section:

  (c) Application of effective dates—(1) In general. Except as provided in paragraph (c)(3) of this section, for purposes of determining the effective date (e.g., of legislative, regulatory, or administrative changes) or the applicability of any provision of the internal revenue laws that is expressed in terms of taxable years beginning, including, or ending with reference to the first or last day of a specified calendar month, a 52-53-week taxable year is deemed to begin on the first day of the calendar month nearest to the first day of the 52-53-week taxable year, and is deemed to end or close on the last day of the calendar month nearest to the last day of the 52-53-week taxable year, as the case may be. Examples of provisions of this title, the applicability of which is expressed in terms referred to in the preceding sentence, include the provisions relating to the time for filing returns and other documents, paying tax, or performing other acts, and the provisions of part II, subchapter B, chapter 6 (section 1561 and following) relating to surtax exemptions of certain controlled corporations.

  (2) Examples. The provisions of paragraph (c)(1) of this section may be illustrated by the following examples:

  (3) Changes in tax rates. If a change in the rate of tax is effective during a 52-53-week taxable year (other than on the first day of such year as determined under paragraph (c)(1) of this section), the tax for the 52-53-week taxable year must be computed in accordance with section 15, relating to effect of changes, and the regulations thereunder. For the purpose of the computation under section 15, the determination of the number of days in the period before the change, and in the period on and after the change, is to be made without regard to the provisions of paragraph (b)(1) of this paragraph.

  (4) Examples. The provisions of paragraph (c)(3) of this section may be illustrated by the following examples:

  (d) Computation of taxable income. The principles of section 451, relating to the taxable year for inclusion of items of gross income, and section 461, relating to the taxable year for taking deductions, generally are applicable to 52-53-week taxable years. Thus, except as otherwise provided, all items of income and deduction must be determined on the basis of a 52-53-week taxable year. However, a taxpayer may determine particular items as though the 52-53-week taxable year were a taxable year consisting of 12 calendar months, provided that practice is consistently followed by the taxpayer and clearly reflects income. For example, an allowance for depreciation or amortization may be determined on the basis of a 52-53-week taxable year, or as though the 52-53-week taxable year is a taxable year consisting of 12 calendar months, provided the taxpayer consistently follows that practice with respect to all depreciable or amortizable items.

  (e) Treatment of taxable years ending with reference to the same calendar month—(1) Pass-through entities. If a pass-through entity (as defined in paragraph (e)(3)(i) of this section) or an owner of a pass-through entity (as defined in paragraph (e)(3)(ii) of this section), or both, use a 52-53-week taxable year and the taxable year of the pass-through entity and the owner end with reference to the same calendar month, then, for purposes of determining the taxable year in which items of income, gain, loss, deductions, or credits from the pass-through entity are taken into account by the owner of the pass-through, the owner's taxable year will be deemed to end on the last day of the pass-through's taxable year. Thus, if the taxable year of a partnership and a partner end with reference to the same calendar month, then for purposes of determining the taxable year in which that partner takes into account items described in section 702 and items that are deductible by the partnership (including items described in section 707(c)) and includible in the income of that partner, that partner's taxable year will be deemed to end on the last day of the partnership's taxable year. Similarly, if the taxable year of an S corporation and a shareholder end with reference to the same calendar month, then for purposes of determining the taxable year in which that shareholder takes into account items described in section 1366(a) and items that are deductible by the S corporation and includible in the income of that shareholder, that shareholder's taxable year will be deemed to end on the last day of the S corporation's taxable year.

  (2) Personal service corporations and employee-owners. If the taxable year of a PSC (within the meaning of § 1.441-3(c)) and an employee-owner (within the meaning of § 1.441-3(g)) end with reference to the same calendar month, then for purposes of determining the taxable year in which an employee-owner takes into account items that are deductible by the PSC and includible in the income of the employee-owner, the employee-owner's taxable year will be deemed to end on the last day of the PSC's taxable year.

  (3) Definitions—(i) Pass-through entity. For purposes of this section, a pass-through entity means a partnership, S corporation, trust, estate, closely-held real estate investment trust (within the meaning of section 6655(e)(5)(B)), common trust fund (within the meaning of section 584(i)), controlled foreign corporation (within the meaning of section 957), foreign personal holding company (within the meaning of section 552), or passive foreign investment company that is a qualified electing fund (within the meaning of section 1295).

  (ii) Owner of a pass-through entity. For purposes of this section, an owner of a pass-through entity generally means a taxpayer that owns an interest in, or stock of, a pass-through entity. For example, an owner of a pass-through entity includes a partner in a partnership, a shareholder of an S corporation, a beneficiary of a trust or an estate, an owner of a closely-held real estate investment trust (within the meaning of section 6655(e)(5)(A)), a participant in a common trust fund, a U.S. shareholder (as defined in section 951(b)) of a controlled foreign corporation, a U.S. shareholder (as defined in section 551(a)) of a foreign personal holding company, or a U.S. person that holds stock in a passive foreign investment company that is a qualified electing fund with respect to that shareholder.

  (4) Examples. The provisions of paragraph (e)(2) of this section may be illustrated by the following examples:

  (5) Transition rule. In the case of an owner of a pass-through entity (other than the owner of a partnership or S corporation) that is required by this paragraph (e) to include in income for its first taxable year ending on or after May 17, 2002 amounts attributable to two taxable years of a pass-through entity, the amount that otherwise would be required to be included in income for such first taxable year by reason of this paragraph (e) should be included in income ratably over the four-taxable-year period beginning with such first taxable year under principles similar to § 1.702-3T, unless the owner of the pass-through entity elects to include all such income in its first taxable year ending on or after May 17, 2002.

• Treas. Reg. §1.441-2(a)In general—(1) Election. Show full text ▾ Collapse ▴

  In general—(1) Election. An eligible taxpayer may elect to compute its taxable income on the basis of a fiscal year that—

• Treas. Reg. §1.441-2(b)Procedures to elect a 52-53-week taxable year—(1) Adoption of a 52-53-week taxable year—(i) In general. Show full text ▾ Collapse ▴

  Procedures to elect a 52-53-week taxable year—(1) Adoption of a 52-53-week taxable year—(i) In general. A new eligible taxpayer elects a 52-53-week taxable year by adopting such year in accordance with § 1.441-1(c). A newly-formed partnership, S corporation or personal service corporation (PSC) may adopt a 52-53-week taxable year without the approval of the Commissioner if such year ends with reference to either the taxpayer's required taxable year (as defined in § 1.441-1(b)(2)) or the taxable year elected under section 444. See §§ 1.441-3, 1.706-1, and 1.1378-1. Similarly, a newly-formed specified foreign corporation (as defined in section 898(b)) may adopt a 52-53-week taxable year if such year ends with reference to the taxpayer's required taxable year, or, if the one-month deferral election under section 898(c)(1)(B) is made, with reference to the month immediately preceding the required taxable year. See § 1.1502-76(a)(1) for special rules regarding subsidiaries adopting 52-53-week taxable years.

  (ii) Filing requirement. A taxpayer adopting a 52-53-week taxable year must file with its Federal income tax return for its first taxable year a statement containing the following information—

  (A) The calendar month with reference to which the 52-53-week taxable year ends;

  (B) The day of the week on which the 52-53-week taxable year always will end; and

  (C) Whether the 52-53-week taxable year will always end on the date on which that day of the week last occurs in the calendar month, or on the date on which that day of the week falls that is nearest to the last day of that calendar month.

  (2) Change to (or from) a 52-53-week taxable year—(i) In general. An election of a 52-53-week taxable year by an existing eligible taxpayer with an established taxable year is treated as a change in annual accounting period that requires the approval of the Commissioner in accordance with § 1.442-1. Thus, a taxpayer must obtain approval to change from its current taxable year to a 52-53-week taxable year, even if such 52-53-week taxable year ends with reference to the same calendar month. Similarly, a taxpayer must obtain approval to change from a 52-53-week taxable year, or to change from one 52-53-week taxable year to another 52-53-week taxable year. However, a taxpayer may obtain approval for 52-53-week taxable year changes automatically to the extent provided in administrative procedures published by the Commissioner. See § 1.442-1(b) for procedures for obtaining such approval.

  (ii) Special rules for the short period required to effect the change. If a change to or from a 52-53-week taxable year results in a short period (within the meaning of § 1.443-1(a)) of 359 days or more, or six days or less, the tax computation under § 1.443-1(b) does not apply. If the short period is 359 days or more, it is treated as a full taxable year. If the short period is six days or less, such short period is not a separate taxable year but instead is added to and deemed a part of the following taxable year. (In the case of a change to or from a 52-53-week taxable year not involving a change of the month with reference to which the taxable year ends, the tax computation under § 1.443-1(b) does not apply because the short period will always be 359 days or more, or six days or less.) In the case of a short period which is more than six days and less than 359 days, taxable income for the short period is placed on an annual basis for purposes of § 1.443-1(b) by multiplying such income by 365 and dividing the result by the number of days in the short period. In such case, the tax for the short period is the same part of the tax computed on such income placed on an annual basis as the number of days in the short period is of 365 days (unless § 1.443-1(b)(2), relating to the alternative tax computation, applies). For an adjustment in deduction for personal exemption, see § 1.443-1(b)(1)(v).

  (3) Examples. The following examples illustrate paragraph (b)(2)(ii) of this section:

• Treas. Reg. §1.441-2(c)Application of effective dates—(1) In general. Show full text ▾ Collapse ▴

  Application of effective dates—(1) In general. Except as provided in paragraph (c)(3) of this section, for purposes of determining the effective date (e.g., of legislative, regulatory, or administrative changes) or the applicability of any provision of the internal revenue laws that is expressed in terms of taxable years beginning, including, or ending with reference to the first or last day of a specified calendar month, a 52-53-week taxable year is deemed to begin on the first day of the calendar month nearest to the first day of the 52-53-week taxable year, and is deemed to end or close on the last day of the calendar month nearest to the last day of the 52-53-week taxable year, as the case may be. Examples of provisions of this title, the applicability of which is expressed in terms referred to in the preceding sentence, include the provisions relating to the time for filing returns and other documents, paying tax, or performing other acts, and the provisions of part II, subchapter B, chapter 6 (section 1561 and following) relating to surtax exemptions of certain controlled corporations.

  (2) Examples. The provisions of paragraph (c)(1) of this section may be illustrated by the following examples:

  (3) Changes in tax rates. If a change in the rate of tax is effective during a 52-53-week taxable year (other than on the first day of such year as determined under paragraph (c)(1) of this section), the tax for the 52-53-week taxable year must be computed in accordance with section 15, relating to effect of changes, and the regulations thereunder. For the purpose of the computation under section 15, the determination of the number of days in the period before the change, and in the period on and after the change, is to be made without regard to the provisions of paragraph (b)(1) of this paragraph.

  (4) Examples. The provisions of paragraph (c)(3) of this section may be illustrated by the following examples:

• Treas. Reg. §1.441-2(d)Computation of taxable income. Show full text ▾ Collapse ▴

  Computation of taxable income. The principles of section 451, relating to the taxable year for inclusion of items of gross income, and section 461, relating to the taxable year for taking deductions, generally are applicable to 52-53-week taxable years. Thus, except as otherwise provided, all items of income and deduction must be determined on the basis of a 52-53-week taxable year. However, a taxpayer may determine particular items as though the 52-53-week taxable year were a taxable year consisting of 12 calendar months, provided that practice is consistently followed by the taxpayer and clearly reflects income. For example, an allowance for depreciation or amortization may be determined on the basis of a 52-53-week taxable year, or as though the 52-53-week taxable year is a taxable year consisting of 12 calendar months, provided the taxpayer consistently follows that practice with respect to all depreciable or amortizable items.

• Treas. Reg. §1.441-2(e)Treatment of taxable years ending with reference to the same calendar month—(1) Pass-through entities. Show full text ▾ Collapse ▴

  Treatment of taxable years ending with reference to the same calendar month—(1) Pass-through entities. If a pass-through entity (as defined in paragraph (e)(3)(i) of this section) or an owner of a pass-through entity (as defined in paragraph (e)(3)(ii) of this section), or both, use a 52-53-week taxable year and the taxable year of the pass-through entity and the owner end with reference to the same calendar month, then, for purposes of determining the taxable year in which items of income, gain, loss, deductions, or credits from the pass-through entity are taken into account by the owner of the pass-through, the owner's taxable year will be deemed to end on the last day of the pass-through's taxable year. Thus, if the taxable year of a partnership and a partner end with reference to the same calendar month, then for purposes of determining the taxable year in which that partner takes into account items described in section 702 and items that are deductible by the partnership (including items described in section 707(c)) and includible in the income of that partner, that partner's taxable year will be deemed to end on the last day of the partnership's taxable year. Similarly, if the taxable year of an S corporation and a shareholder end with reference to the same calendar month, then for purposes of determining the taxable year in which that shareholder takes into account items described in section 1366(a) and items that are deductible by the S corporation and includible in the income of that shareholder, that shareholder's taxable year will be deemed to end on the last day of the S corporation's taxable year.

  (2) Personal service corporations and employee-owners. If the taxable year of a PSC (within the meaning of § 1.441-3(c)) and an employee-owner (within the meaning of § 1.441-3(g)) end with reference to the same calendar month, then for purposes of determining the taxable year in which an employee-owner takes into account items that are deductible by the PSC and includible in the income of the employee-owner, the employee-owner's taxable year will be deemed to end on the last day of the PSC's taxable year.

  (3) Definitions—(i) Pass-through entity. For purposes of this section, a pass-through entity means a partnership, S corporation, trust, estate, closely-held real estate investment trust (within the meaning of section 6655(e)(5)(B)), common trust fund (within the meaning of section 584(i)), controlled foreign corporation (within the meaning of section 957), foreign personal holding company (within the meaning of section 552), or passive foreign investment company that is a qualified electing fund (within the meaning of section 1295).

  (ii) Owner of a pass-through entity. For purposes of this section, an owner of a pass-through entity generally means a taxpayer that owns an interest in, or stock of, a pass-through entity. For example, an owner of a pass-through entity includes a partner in a partnership, a shareholder of an S corporation, a beneficiary of a trust or an estate, an owner of a closely-held real estate investment trust (within the meaning of section 6655(e)(5)(A)), a participant in a common trust fund, a U.S. shareholder (as defined in section 951(b)) of a controlled foreign corporation, a U.S. shareholder (as defined in section 551(a)) of a foreign personal holding company, or a U.S. person that holds stock in a passive foreign investment company that is a qualified electing fund with respect to that shareholder.

  (4) Examples. The provisions of paragraph (e)(2) of this section may be illustrated by the following examples:

  (5) Transition rule. In the case of an owner of a pass-through entity (other than the owner of a partnership or S corporation) that is required by this paragraph (e) to include in income for its first taxable year ending on or after May 17, 2002 amounts attributable to two taxable years of a pass-through entity, the amount that otherwise would be required to be included in income for such first taxable year by reason of this paragraph (e) should be included in income ratably over the four-taxable-year period beginning with such first taxable year under principles similar to § 1.702-3T, unless the owner of the pass-through entity elects to include all such income in its first taxable year ending on or after May 17, 2002.

• Treas. Reg. §1.441-2(i)§1.441-2(i) Show full text ▾ Collapse ▴

  Varies from 52 to 53 weeks;

  (ii) Ends always on the same day of the week; and

  (iii) Ends always on—

  (A) Whatever date this same day of the week last occurs in a calendar month; or

  (B) Whatever date this same day of the week falls that is the nearest to the last day of the calendar month.

  (2) Effect. In the case of a taxable year described in paragraph (a)(1)(iii)(A) of this section, the year will always end within the month and may end on the last day of the month, or as many as six days before the end of the month. In the case of a taxable year described in paragraph (a)(1)(iii)(B) of this section, the year may end on the last day of the month, or as many as three days before or three days after the last day of the month.

  (3) Eligible taxpayer. A taxpayer is eligible to elect a 52-53-week taxable year if such fiscal year would otherwise satisfy the requirements of section 441 and the regulations thereunder. For example, a taxpayer that is required to use a calendar year under § 1.441-1(b)(2)(i)(D) is not an eligible taxpayer.

  (4) Example. The provisions of this paragraph (a) are illustrated by the following example: