500. What is an individual’s “taxable year”?Nuco Employeercline202014-07-24T14:47:00Z2014-07-24T14:47:00Z24302455UMKC205288014Site Map/General Income Taxation/Individuals/Accounting-TimingTaxFactsDefaultArticle2007-01-30T00:00:00Z123741402-00-tf2.xml1402.00;#1718;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2What is an individual’s “taxable year”?50200.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:07:52Z500. What is an individual’s “taxable year”?The basic period for computing income tax liability is one year, known as the taxable year. The taxable year may be either (a) the calendar year or (b) a fiscal year. A “calendar year” is a period of 12 months ending on December 31. A “fiscal year” is a period of 12 months ending on the last day of a month other than December.IRC Secs. 441(a), 441(b), 441(d), 441(e).Generally, a taxpayer may decide whether he wishes to use the calendar year or fiscal year in reporting his tax liability. Most individuals report on a calendar year basis. The year used for reporting tax liability must generally correspond to the taxpayer’s accounting period.IRC Sec. 441(f)(1). Thus, if the taxpayer keeps books on a fiscal year basis he cannot determine his tax liability on a calendar year basis. But if the taxpayer keeps no books, he must report on a calendar year basis.IRC Sec. 441(g). Once the taxpayer has chosen his tax year, he cannot change without the permission of the Internal Revenue Service.IRC Sec. 442. A principal partner cannot change to a taxable year other than that of the partnership unless he establishes, to the satisfaction of the IRS, a business purpose for doing so.IRC Sec. 706(b)(2).Under certain circumstances, partnerships, S corporations, and personal service corporations are required to use the calendar year for computing income tax liability.See IRC Secs. 441(i), 706(b), 1378.A short period return is required (1) where the taxpayer changes his annual accounting period, and (2) where a taxpayer has been in existence for only part of a taxable year.IRC Sec. 443(a). A short period is treated in the law as a “taxable year.”IRC Sec. 441(b)(3).If the short period return is made because of a change in accounting period, the income during the short period must be annualized, and deductions and exemptions prorated.IRC Secs. 443(b), 443(c). But income for the short period is not required to be annualized if the taxpayer is not in existence for the entire taxable year.Treas. Reg. §1.443-1(a)(2).For the final regulations affecting taxpayers who want to adopt an annual accounting period (under IRC Section 441), or who must receive approval to adopt, change, or retain their annual accounting periods (under IRC Section 442), see Treas. Regs. §§1.441-0, 1.441-1, 1.441-2, 1.441-3, 1.441-4; TD 8996.67 Fed. Reg. 35009 (5-17-2002).For the general procedures for establishing a business purpose and obtaining approval to adopt, change, or retain an annual accounting period, see Rev. Proc. 2002-39.2002-1 CB 1046, as modified by, Notice 2002-72, 2002-2 CB 843, and further modified by, Rev. Proc. 2003-79, 2003-2 CB 1036.The procedure under which IRC Section 442 allows individuals (e.g., sole proprietors) filing tax returns on a fiscal year basis to obtain automatic approval to change their annual accounting period to a calendar year is set forth in Revenue Procedure 2003-62.2003-2 CB 299, modifying, amplifying, and superseding, Rev. Proc. 66-50, 1966-2 CB 1260, and modifying and superseding, Rev. Proc. 81-40, 1981-2 CB 604. See also Ann. 2003-49, 2003-2 CB 339.The exclusive procedures for (1) certain partnerships, (2) S corporations, (3) electing S corporations, (4) personal service corporations, and (5) trusts to obtain automatic approval to adopt, change, or retain their annual accounting period are set forth in Revenue Procedure 2006-46.2006-45 IRB 859.