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Changing Corp Tax Years

Posted by taxguru on October 4, 2007

Q:

Subject: S Corps

If a corp has been using a fiscal year that ends in a month other than December, it will have to change to a 12/31 fiscal year end if it changes to an S status. If the S status is later revoked, you will not be allowed to change from the 12/31 year end.

Regarding the above statement if you have sent in a 2553 for S corp. status with a F/Y/E of 3/31 and it is denied what happens to the years you have functioned at a F/Y/E of 3/31.  Do you have to amend the tax return with a F/Y/E of 12/31 even if it becomes a financial disaster.  The corp. functioned as 3/31 and cleared out the income etc at 3/31 and now at 12/31 there is a lot of net income.  Any recourse?

 

A:

As I constantly advise, you should be working with an experienced  tax pro before undertaking something as major as changing from a C corp to an S.

From the logistics side, your corp would file regular C corp 1120s for the entire time period until the effective date of the S election as specified in the letter you will receive from IRS.  The income and expenses from the effective date onward will be reported on an S corp 1120S.

 Because of the required change in fiscal year, there will have to be at least one tax return covering less than 12 full months.  Unless the effective date of the election is either January 1 or April 1, it’s more likely that both the final 1120 and the initial 1120S will be for less than 12 months.

Again, an experienced tax pro can give you more specifics on how such a change would affect your business.

Good luck.

Kerry Kerstetter

 

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