441 1d a partnership whose required year changes must

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While, under Regulations § 1.441-1(d), a partnership whose “required year” changes must switch to the new “required year,” Regulations § 1.706-1(b)(3)(iii) nevertheless provides a de minimis rule for partnerships that use a year based on the least aggregate deferral rules. Under this de minimis rule, if “the [partnership] taxable year that results in the least aggregate deferral produces an aggregate deferral that is less than .5 when compared to the aggregate deferral of the current 936 937 938 939 940 940.1 941 942
2/14/2020 Checkpoint | Document 4/20 taxable year, the partnership's current taxable year will be treated as the taxable year with the least aggregate deferral,” and thus no change is permitted. ¶ 9.04[1][b] Nonconforming Year Owing to Valid Business Purpose Establishing a valid business purpose for a nonconforming taxable year is difficult. A number of possible justifications for a nonconforming year are specifically rejected by the legislative history of § 706(b)(1)(C), including (1) the use of a particular year for regulatory or financial accounting purposes; (2) the hiring patterns of a particular business; (3) the use of a particular year for administrative purposes, such as to facilitate the admission or retirement of partners, promotion of staff, or compensation or retirement arrangements; and (4) the fact that business price lists, model years, or other items change on an annual basis consistent with such year. The Service has issued guidelines as to when it will rule that a partnership's business purpose is sufficient to justify a change in the partnership's taxable year. The Service has ruled that, in determining whether a partnership has established a sufficient business purpose to justify consent to use a nonconforming taxable year, both tax factors and nontax factors must be considered. Moreover, the ruling states that, where the use by a partnership of a nonconforming year results in deferral or distortion of income, the nontax factors must be “compelling.” The examples in the ruling indicate that the Service is not likely to view many nontax factors as compelling. A partnership is also permitted to have a taxable year other than its required taxable year if it (1) elects to use an alternative year for accounting purposes under § 444 (discussed below), (2) elects to use a 52–53 week taxable year that ends with reference to its required taxable year or a taxable year elected under § 444, or (3) establishes a business purpose for such taxable year and obtains the Service's approval under § 442. The requirements for establishing a business purpose and obtaining the Service's approval for an alternative accounting year under § 442 are a little broader than those specified with respect to § 706(b). In particular, permission will be granted for a nonconforming taxable year if 25 percent or more of the taxpayer's gross receipts for the twelve-month period preceding the desired year-end are recognized in the last two months of such period, and this test has been met for each of the preceding three twelve-month periods.

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