CCA 201302022: Terminating a section 444 election requires a required tax year

Plain-English summary

Chief Counsel Advice addresses termination of a section 444 tax-year election by a partnership, S corporation, or personal service corporation. It states that once a section 444 election is terminated, the entity generally may not make another election and must change to its required tax year. The entity may avoid that result by demonstrating a business purpose under Rev. Proc. 2006-46 or obtaining a letter ruling from the IRS National Office. The advice also states that termination may be voluntary or may occur when the IRS revokes the election because the entity willfully fails to comply with sections 7519 or 280H.

Ruling snapshot

• Question: What follows when a partnership, S corporation, or personal service corporation's section 444 election is terminated?
• Outcome: Advice given.
• Key authorities: IRC §§ 444, 444(d)(2)(B), 7519, and 280H; Treas. Reg. § 1.444-1T(5)(C); Rev. Proc. 2006-46.

Full text (IRS public release)

ID: CCA-404707-12 Number: 201302022
Release Date: 1/11/2013
Office: ----------------
UILC: 444.04-00, 7519.02-00

From: -------------------
Sent: Wednesday, April 4, 2012 7:07 AM
To: ------------------------------------------
Cc: ---------------------------------------------------------------------------------------------------------------- Subject: MFT 15s UWR ---------

------- - section 444 permits a new partnership, an electing S corporation, or a new PSC, if qualified, to make a section 444 election. Section 444(d)(2)(B) provides that if a section 444 election is terminated, the partnership, S corporation, or PSC may not make another election. The tp must change to its required year unless it can demonstrate a business purpose under our automatic Rev. Porc. 2006-46 or receives a letter ruling from the national office.

The termination may be made by the tp or may be made by the Service by revoking the 444 election. Section 1.444-1T(5)(C) provides that a section 444 is terminated if a partnership, S corporation, or PSC willfully fails to comply with the requirements of section 7519 and 280H, whichever is applicable.