Section 444 Compliance for

Partnerships and S Corporations

A partnership and S corporation may elect to use a tax year other than a required tax year. The calendar year is the required tax year for most partnerships and for all S corporations unless a business purpose for a fiscal year exists. A "business purpose" is not covered in this text. We are assuming here that the requisite Section 444 election has been made by filing Form 8716, Election to Have a Tax Year Other Than a Required Tax Year. The elected tax year results in a deferral period that is not longer than three months.

What is a deferral period?

For an entity adopting or changing a tax year using a Code Section 444 election, deferral period means the months that occur after the end of the tax year to be elected under Code Section 444, and before the close of the required tax year. For example, if the new tax year elected under Code Section 444 ends September 30, and the required tax year ends December 31, the deferral period for such September 30 tax year is three months.

What is the effect of Sec. 444 election?

If a partnership of S corporation elects to have a tax year other than the required tax year, the entity must make the payments required by Code Sec. 7519 for any tax year for which an election is in effect. A "required payment" under Code Section 7519 is due along with Form 8752 on or before May 15th of the calendar year following the calendar year in which the election year begins.

A willful failure by an electing partnership or S corporation to comply with the required payment rules results in the termination of the election, effective from the year in which the willful failure occurred.

For information on electing S corporation status click here.

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