S corp question


J

Justin Green

I have a client that is/was a C corp with a 7/31 year end.
Last fall, we made an S election pursuant to Rev Proc 98-55
to have the corporation switch to be an S corp effective
1/1/03. We were told by the IRS that the company would have
to file a short S corp return from 7/31 through 12/31. Is
this right? The taxpayer chose to change to a calendar
year. Does the short period really have to be an S?
 
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G

Gene E. Utterback, EA

Justin Green said:
I have a client that is/was a C corp with a 7/31 year end.
Last fall, we made an S election pursuant to Rev Proc 98-55
to have the corporation switch to be an S corp effective
1/1/03. We were told by the IRS that the company would have
to file a short S corp return from 7/31 through 12/31. Is
this right? The taxpayer chose to change to a calendar
year. Does the short period really have to be an S?
I believe so. Remember, the S election takes effect at the
beginning of the corporation's tax year and S corporations,
absent an IRC Sec 444 election (usually very expensive),
must be on a calendar year. So a fiscal year corporation
that converts to an S corporation will be an S corporation
as of the beginning of the next fiscal year but must end
that year on 12/31.

Gene E. Utterback, EA
 
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K

Katie Jaques

Justin Green said:
I have a client that is/was a C corp with a 7/31 year end.
Last fall, we made an S election pursuant to Rev Proc 98-55
to have the corporation switch to be an S corp effective
1/1/03. We were told by the IRS that the company would have
to file a short S corp return from 7/31 through 12/31. Is
this right? The taxpayer chose to change to a calendar
year. Does the short period really have to be an S?
Sec. 1362 says an S election can be made at any time during
the preceding taxable year, or at any time during the
taxable year and before the 15th day of the 3rd month of the
taxable year.

Your client's taxable year was 8/1-7/31. If the election
was made on or before October 15, 2002, it was made within
the first 2-1/2 months of the 7/31/03 taxable year and is
effective for that year. Absent a Sec. 444 election, which
it probably wouldn't qualify for anyway, the corporation
must change its accounting period to a 12/31 year end,
resulting in the short period S return.

If the election was made after Oct. 15, 2002, it would not
be effective until August 1, 2003 unless the corporation had
also applied for a change to a 12/31 year end under Sec.
442. Then the short period would be a C.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 

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