SECTION 8. EFFECT OF APPROVAL

.01 Audit Protection

(1) In general (2) Exceptions .02 Subsequently Required Changes

(3) Required taxable year .

that ends with reference to its required taxable year, makes an election under § 444, or establishes a business purpose for having a different taxable year and obtains approval under § 442.

(b) Partnerships . Section 706(b) and the regulations thereunder generally provide that a partnership’s taxable year must be its required taxable year. However, a partnership may have a taxable year other than its required taxable year if it elects to use a 52–53-week taxable year that ends with reference to its required taxable year, makes an election under § 444, or establishes a business purpose for having a different taxable year and obtains approval under § 442. The required taxable year for a partnership is:

(i) the taxable year of one or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent;

(ii) if there is no taxable year described in clause (i), the taxable year of all the principal partners of the partnership ( i.e., all the partners having an interest of 5-percent or more in partnership profits or capital); or

(iii) if there is no taxable year described in clause (i) or (ii), the taxable year that results in the least aggregate deferral of income to the partners.

(c) S corporations . Section 1378 and § 1.1378–1(a) provide that the taxable year of an S corporation must be a permitted year or a taxable year elected under § 444. The term “permitted year” means (1) the required taxable year ( i.e., a taxable year ending on December 31), (2) a 52–53-week taxable year ending with reference to the required taxable year, or (3) any other accounting period for which the corporation establishes a business purpose to the satisfaction of the Commissioner.

(d) PSCs . Section 441(i)(1) and § 1.441–3 provide that the taxable year of a PSC must be the calendar year unless the PSC elects to use a 52–53-week taxable year that ends with reference to the calendar year, makes an election under § 444, or establishes, to the satisfaction of the Commissioner, a business purpose for having a different period for its taxable year.

.02 Adoption of a Taxable Year . A newly-formed partnership, S corporation, or PSC may adopt its required taxable

(1) In general (2) Retroactive change or modifica-

(a) In general . Section 1.441 –1(b)(2) provides that certain taxpayers must use the particular taxable year that is required under the Code and the regulations thereunder (the “required taxable year). For example, as described below, a partnership, S corporation, or PSC generally is required to conform its taxable year to the taxable year of its owners. H.R. Rep. No. 99–841 (Conf. Rep.), 99th Cong., 2d Sess., II–318 (1986), 1986–3 (Vol. 4) C.B. 319. Exceptions are provided for certain taxpayers, including a partnership, S corporation, or PSC that elects to use a 52–53-week taxable year

tion