Holiday Tax Quiz Question - for fun

Looks to me like §441 allows any taxpayer, in general, to have a fiscal year.

This conclusion is bolstered by §7701, which gives a rule for individual taxpayers who have fiscal years.

___ Stu

Yes, it is possible. However, if the taxpayer has ever filed before, a form 3115 may be needed.

Mais oui, as we say in Kansas. One simply files the first return on that basis. Switching later is an accounting change requiring approval. IIRC our esteemed moderator was talking about this some time ago in contemplation of his son's first return.

There are some FY 1040 filers. During my IRS legislative implementation days there was that inevitable moment in just about any meeting when someone from Tax Forms & Pubs or Return Processing would say, "Now for fiscal year filers...."

Phil Marti VITA/TCE Volunteer Clarksburg, MD

In article

Interesting question. For reasons way too byzantine (and outside of my control) to go into here, I don't get my final K-1 on a sub S company until around early September. For the last few years we have been getting an extension and doing the final filing when we get the K-1. It hasn't been much of a problem since by 4-15 we pretty much know what is going to happen, just don't have the final paperwork. Is there any particular advantage for me to move to a fiscal that more closely resembles when I get the K-1?

And yes, I did set my son, Chainsaw Rich, up on a July 1st/June 30th fiscal year - plus I did the recordkeeping and prepared his returns for him. First he complained that his friends got refunds larger than his. Then he complained they got their refunds earlier in the year - Maybe I should have used a September 30th year-end. Finally some smartmouth with an Accounting degree told him that when he got married he wouldnt be able to file a joint return! My response of letting him have a first edition of my unwritten book "Living in Sin for Fun and Profit" got a smile but went over his head. So I prepared an accounting change and a short year return, and told him he was on his own. It lasted 7 years with no problems. Now he gets less take-home pay and a larger refund. ;)

So it can be done, but you have to keep detailed records and voucher everything. I suspect the IRS never said a word because of the detailed documentation I included with each return.

Dick

A fiscal year other than the calendar year does not by itself bar a joint return. What bars the joint return is the spouses having different fiscal years. However, there is a one-time provision (per marriage) for filing a short-return for one of the spouses to synchronize their tax years to the same end-date, and such a short year is not considered a change in accounting period requiring a form 3115 to be filed.

When I was an auditor for the California Franchise Tax Board, I audited a personal income tax return where the taxpayer had elected to report on a 52-53 week year. This was back in the days when you had to elect installment sale treatment, and collect no more than 30% of the sale price in the year of sale. The taxpayer had sold an asset (stock, IIRC) early in the year, collected less than 30% as a down payment, and then collected the balance of the sale price in the last week of the same calendar year. The preparer (a young manager in a big-8 firm) had the bright idea of electing installment treatment and reporting on a 52-53 week year, so that most of the gain was not recognized until the following year. I thought it was a very clever idea but disallowed it (and taxed 100% of the gain in the year of the sale) because the taxpayer clearly did not keep his books and records on a weekly basis; in fact, everything else on the return was reported on a 12-calendar-months basis.

The tax manager whose idea it was and who represented the taxpayer is still a friend, after all these years, and we work together occasionally.

Katie in San Diego

The answer is right in Pub 17, which is where I found it sometime during my second or third year as a tax preparer, as I recall.

I'm curious how this would play out in today's world where books might be kept in Quickbooks or similar accounting programs. Can't you produce financial statements for pretty much any time period you want, as long as transactions have accurate dates associated with them? I would think a cash-basis business could keep weekly books very easily.

Actually I think the 52-53 week year is intended for that kind of business -- where records are often kept, employees paid, etc by the week. The taxpayer in my audit case didn't have a business -- he was just an employee and an investor, and his W-2 and 1099s all came out on a calendar year basis.

It certainly would be easy for a Schedule C business to be on a 52-53 week basis -- even in those pre-Quickbooks days. However, this guy never thought of keeping any records on a weekly basis until after the fact .

Katie in San Diego..