To make the election, attach a statement with the following information to your tax return for the 52-53-week tax year.

When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months.

To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to:

You must get IRS approval if you want to make the following changes.

When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. The decedent's final return will be a short period tax return unless he or she dies on the last day of the regular tax year.

Income tax for a short tax year is figured on an annual basis. However, self-employment tax is figured on the actual self-employment income for the short period.

Individuals and corporations can use a relief procedure to figure the tax for the short tax year. It may result in less tax. Under this procedure, the tax is figured by two separate methods. If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. For more information, see section 443(b)(2).

To figure the alternative minimum tax (AMT) due for a short tax year:

For information on the alternative minimum tax for individuals, see the instructions for Form 6251, Alternative Minimum Tax–Individuals. For information on the alternative minimum tax for corporations, see Publication 542, or the instructions to Form 4626, Alternative Minimum Tax–Corporations.

You can take a credit against your income tax liability for federal income tax withheld from your wages. Federal income tax is withheld on a calendar year basis. The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year.

A husband and wife who have different tax years cannot file a joint return, except for a husband and wife whose tax years begin on the same date and end on different dates because of the death of either or both. However, a newly married husband or wife with a different tax year is permitted to change his or her tax year to be the same as the other spouse in order to file a joint return. The spouse making this change is not required to file Form 1128. They can file a joint return for the first tax year ending after the date of marriage if both of the following conditions are met.

If the due date for filing the required short period tax return passed before the date the couple marries, they cannot file a joint return until the end of the second tax year after the date of marriage. They can file a joint return for the second tax year only if the spouse changing his or her tax year files a timely short period tax return.

An individual (which includes both spouses in the case of a husband and wife filing jointly) can use automatic approval procedures to change from a fiscal year to a calendar year. However, these procedures are generally not available to individuals deriving income from interests in pass-through entities. This includes individuals who are members of a partnership, beneficiaries of a trust or estate, or S corporation shareholders.

However, interests in pass-through entities will be disregarded in certain circumstances. For example, an interest in a pass-through entity will be disregarded if the pass-through entity would be required under the Internal Revenue Code or Income Tax Regulations to change its tax year to the new calendar year of the individual. See Revenue Procedure 2003–62 in Internal Revenue Bulletin 2003–32 for other circumstances in which interests in pass-through entities will be disregarded.

In addition, individuals that qualify and want to change their tax year using these automatic procedures must comply with the following conditions.

Individuals that do not qualify for automatic approval to change their tax year must get IRS approval under Revenue Procedure 2002–39, in Internal Revenue Bulletin 2002–22, as modified by Revenue Procedure 2003–34 in Internal Revenue Bulletin 2003–18. In addition, see the general discussion under Ruling request on page 5.

The tax year that results in the least aggregate deferral of income is determined as follows.

The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year.

For more information about accounting periods for partnerships, see the instructions for Form 1128. For information about changing a partnership's tax year, see Revenue Procedure 2002–38 for automatic approval requests and Revenue Procedure 2002–39 for ruling requests.

The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election.

You make a section 444 election by filing Form 8716, Election To Have a Tax Year Other Than a Required Tax Year, Form: 8716with the Internal Revenue Service Center where the entity will file its tax return. Form 8716 must be filed by the earlier of:

Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made.

There is an automatic extension of 12 months to make this election. See the Form 8716 instructions for more information.

The section 444 election remains in effect until it is terminated. If the election is terminated, another section 444 election cannot be made for any tax year.

The election ends when any of the following applies to the partnership, S corporation, or PSC.

The election will also end if either of the following events occur.

A partnership or an S corporation must make a required payment for any tax year:

This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year.

Form 8752, Required Payment or Refund Under Section 7519, Form: 8752must be filed each year the section 444 election is in effect, even if no payment is due. If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount.

Form 8752 must be filed and the required payment made (or zero amount reported) by May 15 of the calendar year following the calendar year in which the applicable election year begins. Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. For example, if a partnership's applicable election year begins July 1, 2003, Form 8752 must be filed by May 17, 2004.

A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. The amount deferred is treated as paid or incurred in the following tax year.

For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC).

A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies).

For automatic approval requests, the requirement to establish a business purpose for a tax year is satisfied if the requested tax year coincides with the entity's required tax year, ownership tax year (for S corporations only), or natural business year. For purposes of automatic approval requests, an entity must satisfy the 25-percent gross receipts test to establish a natural business year.

For ruling requests, the requirement to establish a business purpose for a tax year is satisfied if the requested tax year coincides with the entity's natural business year. For purposes of ruling requests, the natural business year of an entity can be determined under any of the following 3 tests:

A partnership, S corporation, or PSC is not eligible to request automatic approval if:

To get automatic approval, a partnership, S corporation, or electing S corporation must file a tax return for the short period. The short period tax return must be filed by the due date, including extensions.

To get automatic approval to adopt, change, or retain its tax year, the entity must file a current Form 1128 or Form 2553 (used by electing S corporations to request approval to adopt a tax year other than a calendar year). See the instructions for Forms 1128 and 2553 for information on when and where to file.

Form 1128 must be filed no earlier than the day following the end of the first tax year for which the adoption, change, or retention is effective (first effective year) and no later than the due date (including extensions) for filing the tax return for the first effective year. In the case of a change, the first effective year is the short period required to effect the change.

Certain C corporations can get automatic approval for a tax year change, including a change to (or from) a 52-53-week tax year. The corporation must, however, meet all the following criteria.

Corporations that qualify and want to change their tax year using this automatic procedure must also comply with the following conditions.

See Revenue Procedure 2002–37 for more information. See also Revenue Procedure 2003–34 in Internal Revenue Bulletin 2003–18, which modifies the restrictions in Revenue Procedure 2002–37 against carrying back NOLs and CLs generated in the short period.

If a corporation is requesting to change a tax year and does not qualify for automatic approval, the corporation can request a ruling under Revenue Procedure 2002–39. See Ruling Request on page 5 for more information. For filing information, see the instructions for Form 1128 for details.

A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. An entity's average annual gross receipts for a prior tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. See Gross receipts test for qualifying taxpayers on page 21 for more information on the gross receipts test. Generally, a partnership applies the test at the partnership level. Gross receipts for a short tax year are annualized.

Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. For family corporations (defined in section 447(d)(2)(C)) engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. See section 447 and chapter 3 of Publication 225, Farmer's Tax Guide, for more information.

A PSC that meets the following function and ownership tests can use the cash method.

You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. This includes an agreement providing for incidental replacement of parts or materials. However, this applies only if you offer the property without a service agreement in the normal course of business.

In each of the following examples, assume you use the calendar year and an accrual method of accounting.

In Examples 3 and 4, if you do not perform part of the services by the end of the following tax year (2004), you must still include advance payments for the unperformed services in gross income for 2004.

Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in gross receipts for your books and records and all your reports. This includes reports (including consolidated financial statements) to shareholders, partners, other proprietors or beneficiaries, and for credit purposes.

You must file Form 3115 to get IRS approval, as discussed later under Change in Accounting Method, on page 28 to change your method of accounting for advance payments for services.

You generally include an advance payment in income in the year in which you receive it. However, you can use the alternative method, discussed next.

Under the alternative method, you generally include an advance payment in income in the earlier tax year in which:

If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements.

If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. If you estimate the cost, you must take any difference between the estimate and the actual cost into account when the goods are delivered.

You must report any advance payments you receive after the second year in the year received. No further deferral is allowed.

You must file Form 3115 to get IRS approval to change your method of accounting for advance payments for sales.

If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments.

Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. are paid. However, you can elect to treat taxes as a recurring item, discussed later. You can also elect to ratably accrue real estate taxes. See chapter 6 of Publication 535 for information about real estate taxes.

Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts.

Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made.

Generally, economic performance occurs as an employee renders service to the employer. However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits.

An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. The exception applies if all the following requirements are met.

For purposes of this rule, the following persons are related.

Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly or indirectly by the same interests.

You must satisfy each of the following conditions to take the deduction in the year of payment or transfer.

An adjustment is usually necessary when you recover any part of a contested liability. This occurs when you deduct the liability in the year of payment and recover any part of it in a later tax year when the contest is settled. Include in gross income in the year of final settlement the part of the recovered amount that, when deducted, decreased your tax for any tax year.

The rule allowing the deduction of contested liabilities in the tax year of payment does not apply to the deduction for income, war profits, and excess profits taxes imposed by any foreign government or U.S. possession. This means that an accrual method taxpayer deducts these liabilities in the tax year in which the contested foreign tax or U.S. possession tax is finally determined.

Contested foreign taxes accrued for the foreign tax credit are not covered under this provision but relate back to and are credited in the tax year in which they would have been accrued had they not been contested.