Election of taxable year other than required taxable year

# (a) General rule

Except as otherwise provided in this section, a partnership, S corporation, or personal service corporation may elect to have a taxable year other than the required taxable year.

# (b) Limitations on taxable years which may be elected

(1) In general Except as provided in paragraphs (2) and (3), an election may be made under subsection (a) only if the deferral period of the taxable year elected is not longer than 3 months.

(2) Changes in taxable year Except as provided in paragraph (3), in the case of an entity changing a taxable year, an election may be made under subsection (a) only if the deferral period of the taxable year elected is not longer than the shorter of— (A) 3 months, or (B) the deferral period of the taxable year which is being changed.

(3) Special rule for entities retaining 1986 taxable years In the case of an entity's 1st taxable year beginning after December 31, 1986, an entity may elect a taxable year under subsection (a) which is the same as the entity's last taxable year beginning in 1986.

(4) Deferral period For purposes of this subsection, except as provided in regulations, the term "deferral period" means, with respect to any taxable year of the entity, the months between— (A) the beginning of such year, and (B) the close of the 1st required taxable year ending within such year.

# (c) Effect of election

If an entity makes an election under subsection (a), then— (1) in the case of a partnership or S corporation, such entity shall make the payments required by section 7519, and (2) in the case of a personal service corporation, such corporation shall be subject to the deduction limitations of section 280H.

# (d) Elections

(1) Person making election An election under subsection (a) shall be made by the partnership, S corporation, or personal service corporation.

(2) Period of election (A) In general Any election under subsection (a) shall remain in effect until the partnership, S corporation, or personal service corporation changes its taxable year or otherwise terminates such election. Any change to a required taxable year may be made without the consent of the Secretary. (B) No further election If an election is terminated under subparagraph (A) or paragraph (3)(A), the partnership, S corporation, or personal service corporation may not make another election under subsection (a).

(3) Tiered structures, etc. (A) In general Except as otherwise provided in this paragraph— (i) no election may be under subsection (a) with respect to any entity which is part of a tiered structure, and (ii) an election under subsection (a) with respect to any entity shall be terminated if such entity becomes part of a tiered structure. (B) Exceptions for structures consisting of certain entities with same taxable year Subparagraph (A) shall not apply to any tiered structure which consists only of partnerships or S corporations (or both) all of which have the same taxable year.

# (e) Required taxable year

For purposes of this section, the term "required taxable year" means the taxable year determined under section 706(b), 1378, or 441(i) without taking into account any taxable year which is allowable by reason of business purposes. Solely for purposes of the preceding sentence, sections 706(b), 1378, and 441(i) shall be treated as in effect for taxable years beginning before January 1, 1987.

# (f) Personal service corporation

For purposes of this section, the term "personal service corporation" has the meaning given to such term by section 441(i)(2).

# (g) Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section, including regulations to prevent the avoidance of subsection (b)(2)(B) or (d)(2)(B) through the change in form of an entity.