Question

Ann is the sole shareholder of Salmon Corporation, a newly formed C corporation. Fran is the sole shareholder of Scarlet Corporation, a newly formed C corporation that is a personal service corporation. Both Ann and Fran plan to have their corporations elect a March 31 fiscal year-end. Will the IRS treat both corporations alike with respect to the fiscal year election? Why or why not?

Answer 1

The IRS may treat Salmon Corporation and Scarlet Corporation differently regarding the fiscal year election. Salmon Corporation may be allowed to elect a March 31 fiscal year-end, while Scarlet Corporation may be restricted to a December 31 fiscal year-end.

Step-by-step explanation:

The IRS may treat Salmon Corporation and Scarlet Corporation differently regarding the fiscal year election. The IRS may allow Salmon Corporation to elect a March 31 fiscal year-end because it is a regular C corporation. However, Scarlet Corporation, being a personal service corporation, may be required by the IRS to have a December 31 fiscal year-end. This difference in treatment is because personal service corporations have specific rules that restrict their fiscal year election. According to the IRS, a personal service corporation must have a calendar year-end (December 31) fiscal year unless it qualifies for a business purpose exception or a natural business year exception. Based on this information, Ann's corporation may be able to elect a March 31 fiscal year-end, while Fran's corporation may be limited to a December 31 fiscal year-end.