12.3 Tax Year Selection
Key Takeaways
Calendar Year: Jan 1 – Dec 31 (default for individuals).
Fiscal Year: 12 months ending last day of any month (not Dec).
52-53 Week Year: ends same day of week each year.
Pass-throughs: required year based on owner(s).
Section 444: max 3-month deferral with required payments.
Natural Business Year: 25% of receipts in last 2 months.
Why This Matters for the Exam
Tax year rules prevent deferral abuse. Know the required year hierarchy and Section 444 limits.
Types of Tax Years
| Type | Definition |
|---|---|
| Calendar | Jan 1 – Dec 31 |
| Fiscal | 12 months, last day of month (not Dec) |
| 52-53 Week | Ends same weekday each year |
Required Year (Pass-Throughs)
| Priority | Partnership Rule |
|---|---|
| 1 | Majority interest year (>50% same year) |
| 2 | Principal partners year (all 5%+ same) |
| 3 | Least aggregate deferral |
| S-Corps | Rule |
|---|---|
| Default | Calendar year |
| Exception | Business purpose or §444 |
Section 444 Election
| Requirement | Description |
|---|---|
| Max deferral | 3 months |
| Required payments | Form 7519 (interest-free deposit) |
| Tiered structures | Generally not available |
Section 444 Example
| Required Year | Allowed §444 Years |
|---|---|
| December 31 | Sept 30, Oct 31, Nov 30 |
| NOT allowed | June 30 (6-month deferral) |
Natural Business Year Test
| Requirement | Description |
|---|---|
| 25% test | 25%+ receipts in last 2 months |
| Duration | 3 consecutive years |
| Benefit | No §444 payments required |
Form 1128
| Purpose | Change in tax year | | IRS approval | Required for most changes |
Real-World Scenario
Scenario: A 2025 S-Corp (all calendar-year shareholders) wants a June 30 fiscal year under §444.
- Required year: December 31.
- Maximum deferral: 3 months.
- June 30: 6-month deferral = prohibited.
- Result: Cannot use §444 for June 30.
On the Exam
Question types to practice on tax year:
- §444 Questions: "Can S-Corp elect June 30 year?"
- Required Year Questions: "What is partnership's required year?"
- 52-53 Week Questions: "What is this type of year?"
The key is to remember: Pass-throughs match owners. §444 = max 3 months. Natural business year = 25% test. 52-53 week = ends same weekday.
S-Corp (all calendar shareholders) wants June 30 fiscal under §444. Allowed?
Yes, with §7519 payments
No, deferral exceeds 3 months
Yes, if 52-53 week
No, S-Corps cannot have fiscal years
Year ending "last Saturday in January." What type?
Calendar
Fiscal
52-53 Week
Short Tax Year
Natural Business Year requires what % of receipts in last 2 months?
10%
20%
25%
50%
Sections you finish are checked off in the contents.