Page 136 - BusinessStructures & Forms

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Small business taxpayer. A small business taxpayer is a for all amounts. To round, drop amounts under 50 cents and
taxpayer that (a) has average annual gross receipts of $27 increase amounts from 50 to 99 cents to the next dollar. For
million or less for the 3 prior tax years, and (b) isn’t a tax shelter example, $8.40 rounds to $8 and $8.50 rounds to $9.
(as defined in section 448(d)(3)). If two or more amounts must be added to figure the amount to
Change in accounting method. Generally, the corporation enter on a line, include cents when adding the amounts and
must get IRS consent to change either an overall method of round off only the total.
accounting or the accounting treatment of any material item for Recordkeeping
income tax purposes. To obtain consent, the corporation must
generally file Form 3115, Application for Change in Accounting Keep the corporation's records for as long as they may be
Method, during the tax year for which the change is requested. needed for the administration of any provision of the Internal
See the Instructions for Form 3115 and Pub. 538, Accounting Revenue Code. Usually, records that support an item of income,
Periods and Methods, for more information and exceptions. See deduction, or credit on the return must be kept for 3 years from
also the Instructions for Form 3115 for procedures that may the date each shareholder's return is due or filed, whichever is
apply for obtaining automatic consent to change certain later. Keep records that verify the corporation's basis in property
methods of accounting, non-automatic change procedures, and for as long as they are needed to figure the basis of the original
reduced Form 3115 filing requirements. or replacement property.
The corporation should keep copies of all filed returns. They
Accounting Period help in preparing future and amended returns.
A corporation must figure its income on the basis of a tax year. A Amended Return
tax year is the annual accounting period a corporation uses to
keep its records and report its income and expenses. To correct a previously filed Form 1120-S, file an amended Form
1120-S and check box H(4) on page 1. Attach a statement that
An S corporation must use one of the following tax years. identifies the line number of each amended item, the corrected
• A tax year ending December 31. amount or treatment of the item, and an explanation of the
• A natural business year. reasons for each change.
• An ownership tax year.
• A tax year elected under section 444. If the income, deductions, credits, or other information
• A 52-53-week tax year that ends with reference to a year provided to any shareholder on Schedule K-1 or K-3 is incorrect,
listed above. file an amended Schedule K-1 or K-3 (Form 1120-S) for that
• Any other tax year (including a 52-53-week tax year) for which shareholder with the amended Form 1120-S. Also give a copy of
the corporation establishes a business purpose. the amended Schedule K-1 or K-3 to that shareholder. Check
the “Amended K-1” or “Amended K-3” box at the top of the
A new S corporation must use Form 2553 to elect a tax year. Schedule K-1 or K-3 to indicate that it is an amended
To later change the corporation's tax year, see Form 1128, Schedule K-1 or K-3.
Application To Adopt, Change, or Retain a Tax Year, and its A change to the corporation's federal return may affect its
instructions (unless the corporation is making an election under state return. This includes changes made as the result of an IRS
section 444, discussed next). examination. For more information, contact the state tax agency
Electing a tax year under section 444. Under the provisions for the state(s) in which the corporation's return was filed.
of section 444, an S corporation can elect to have a tax year Other Forms and Statements That
other than a required year, but only if the deferral period of the
tax year isn't longer than the shorter of 3 months or the deferral May Be Required
period of the tax year being changed. This election is made by
filing Form 8716, Election To Have a Tax Year Other Than a Reportable transaction disclosure statement. Disclose
Required Tax Year. information for each reportable transaction in which the
An S corporation may not make or continue an election under corporation participated. Form 8886, Reportable Transaction
section 444 if it is a member of a tiered structure, other than a Disclosure Statement, must be filed for each tax year the
tiered structure that consists entirely of partnerships and S corporation participated in the transaction. The corporation may
corporations that have the same tax year. For the S corporation have to pay a penalty if it is required to file Form 8886 and
to have a section 444 election in effect, it must make the doesn't do so. The following are reportable transactions.
payments required by section 7519. See Form 8752, Required 1. Any listed transaction, which is a transaction that is the
Payment or Refund Under Section 7519. same as or substantially similar to one of the types of
A section 444 election ends if an S corporation: transactions that the IRS has determined to be a tax avoidance
• Changes its accounting period to a calendar year or some transaction and identified by notice, regulation, or other
other permitted year, published guidance as a listed transaction.
• Is penalized for willfully failing to comply with the requirements 2. Any transaction offered under conditions of confidentiality
of section 7519, or for which the corporation (or a related party) paid an advisor a
• Terminates its S election (unless it immediately becomes a fee of at least $50,000.
personal service corporation). 3. Certain transactions for which the corporation (or a
If the termination results in a short tax year, enter at the top of related party) has contractual protection against disallowance of
the first page of Form 1120-S for the short tax year, “SECTION the tax benefits.
444 ELECTION TERMINATED.” 4. Certain transactions resulting in a loss of at least $2
Rounding Off to Whole Dollars million in any single year or $4 million in any combination of
years.
The corporation may enter decimal points and cents when 5. Any transaction identified by the IRS by notice, regulation,
completing its return. However, the corporation should round off or other published guidance as a “transaction of interest.”
cents to whole dollars on its return, forms, and schedules to
make completing its return easier. The corporation must either For more information, see Regulations section 1.6011-4. Also
round off all amounts on its return to whole dollars, or use cents see the Instructions for Form 8886.

-6- Instructions for Form 1120-S (2022)