Tax Guru – Ker$tetter Letter

Q:

Subject: Fiscal year question

HI Kelly, I went to your site about Choosing Fiscal Year. I have a question if you can help me. I have a new LLC created on 5/17/11. Recently I applied IRS online for EIN. Calender year is a defult on this so I have to elect Fiscal year now with form 1128. My question is can I elect 6/30 year end although 5/17/11 is the creation of the LLC?

Thanks

A:

You really shouldn’t be setting up new business entities without the assistance of a professional tax advisor.  It’s all too easy to make mistakes that may be impossible to remedy later on.

In this example, there are a few misconceptions you already have that an experienced tax pro would have alerted you to.

If you are choosing to have your LLC taxed as a C corp, you can choose the end of any month to be its fiscal year end, regardless of when it was chartered.

For example, if you want June 30 to be the fiscal year-end, that’s your right to choose.  You would need to file the initial 1120 covering all of the activity for the period from 5/17/11 through 6/30/11.  This 1120, or an extension (Form 7004), would be due 9/15/11.  You need to file that 1120 even if no actual activity took place or IRS will assume that you made millions of dollars.

When you have a brand new C corp, it has no set fiscal year-end, so the initial 1120 becomes the official notification to IRS of that fact. This is even if you used December 31 on the SS-4.

You do not need to file Form 1128 to designate the tax year for a new corp that has not filed any 1120s.  Here is a direct excerpt from Page 1 of the 1128 instructions:

Exceptions
Do not file Form 1128 in the following circumstances.

Corporations
• A corporation adopting its first tax year.

Good luck.  I hope this helps.

Kerry Kerstetter