republic-os/legal/us/code/title-26/chapter-1/section-1378.md

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LegalText	26 U.S.C. § 1378	Taxable year of S corporation	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	1378	26 U.S.C. § 1378	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s1378	data/legal/raw/us/code/title-26/usc26.xml	99910da4c3195cb484c6efc1c8273f959c8453d50bd3ab46f290ed7007a5b28e	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	56d6ef952f9c4050cf4bd36860d2444b23929b534b47f863fa6d88fd773649c8	2026-07-04	official	legal us-code

26 U.S.C. § 1378 - Taxable year of S corporation

Text

(a) General rule For purposes of this subtitle, the taxable year of an S corporation shall be a permitted year.

(b) Permitted year defined For purposes of this section, the term “permitted year” means a taxable year which—

(1) is a year ending December 31, or

(2) is any other accounting period for which the corporation establishes a business purpose to the satisfaction of the Secretary.

For purposes of paragraph (2), any deferral of income to shareholders shall not be treated as a business purpose.

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1685; amended Pub. L. 98–369, div. A, title VII, § 721(m), (q), July 18, 1984, 98 Stat. 969, 970; Pub. L. 99–514, title VIII, § 806(b), Oct. 22, 1986, 100 Stat. 2363.)

Notes

Editorial Notes

Prior ProvisionsA prior section 1378, added Pub. L. 89–389, § 2(a), Apr. 14, 1966, 80 Stat. 113; amended Pub. L. 91–172, title V, § 511(c)(4), Dec. 30, 1969, 83 Stat. 638; Pub. L. 94–455, title XIX, § 1901(a)(152), (b)(33)(R), Oct. 4, 1976, 90 Stat. 1789, 1802, related to tax imposed on certain capital gains, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.

Amendments1986—Subsec. (a). Pub. L. 99–514, § 806(b)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “For purposes of this subtitle— “(1) an S corporation shall not change its taxable year to any accounting period other than a permitted year, and “(2) no corporation may make an election under section 1362(a) for any taxable year unless such taxable year is a permitted year.” Subsec. (b). Pub. L. 99–514, § 806(b)(2), inserted at end “For purposes of paragraph (2), any deferral of income to shareholders shall not be treated as a business purpose.” Subsec. (c). Pub. L. 99–514, § 806(b)(3), struck out subsec. (c) which required existing S corporations to use permitted year after 50-percent shift in ownership. 1984—Subsec. (c)(1). Pub. L. 98–369, § 721(m), substituted “which includes December 31, 1982 (or which is an S corporation for a taxable year beginning during 1983 by reason of an election made on or before October 19, 1982)” for “which includes December 31, 1982”. Subsec. (c)(3)(B)(i). Pub. L. 98–369, § 721(q), substituted “who (or whose estate) held” for “who held”.

Statutory Notes and Related Subsidiaries

Effective Date of 1986 AmendmentPub. L. 99–514, title VIII, § 806(e), Oct. 22, 1986, 100 Stat. 2364, as amended by Pub. L. 100–647, title I, § 1008(e)(7), (8), (10), Nov. 10, 1988, 102 Stat. 3441, provided that: “(1) In general.—The amendments made by this section [amending this section and sections 267, 441, and 706 of this title] shall apply to taxable years beginning after December 31, 1986. “(2) Change in accounting period.—In the case of any partnership, S corporation, or personal service corporation required by the amendments made by this section to change its accounting period for the taxpayer’s first taxable year beginning after December 31, 1986—“(A) such change shall be treated as initiated by the partnership, S corporation, or personal service corporation, “(B) such change shall be treated as having been made with the consent of the Secretary, and “(C) with respect to any partner or shareholder of an S corporation which is required to include the items from more than 1 taxable year of the partnership or S corporation in any 1 taxable year, income in excess of expenses of such partnership or corporation for the short taxable year required by such amendments shall be taken into account ratably in each of the first 4 taxable years beginning after December 31, 1986, unless such partner or shareholder elects to include all such income in the the [sic] partner’s or shareholder’s taxable year with or within which the partnership’s or S corporation’s short taxable year ends. Subparagraph (C) shall apply to a shareholder of an S corporation only if such corporation was an S corporation for a taxable year beginning in 1986. “(3) Basis, etc. rules—“(A) Basis rule.—The adjusted basis of any partner’s interest in a partnership or shareholder’s stock in an S corporation shall be determined as if all of the income to be taken into account ratably in the 4 taxable years referred to in paragraph (2)(C) were included in gross income for the 1st of such taxable years. “(B) Treatment of dispositions.—If any interest in a partnership or stock in an S corporation is disposed of before the last taxable year in the spread period, all amounts which would be included in the gross income of the partner or shareholder for subsequent taxable years in the spread period under paragraph (2)(C) and attributable to the interest or stock disposed of shall be included in gross income for the taxable year in which the disposition occurs. For purposes of the preceding sentence, the term ‘spread period’ means the period consisting of the 4 taxable years referred to in paragraph (2)(C).”

Effective Date of 1984 AmendmentAmendment by Pub. L. 98–369 effective as if included in Subchapter S Revision Act of 1982, Pub. L. 97–354, see section 721(y)(1) of Pub. L. 98–369, set out as a note under section 1361 of this title.

Effective DateSection applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as a note under section 1361 of this title.

Construction of Section 806 of Pub. L. 99–514Pub. L. 100–647, title I, § 1008(e)(9), Nov. 10, 1988, 102 Stat. 3441, provided that: “Nothing in section 806 of the Reform Act [Pub. L. 99–514, amending this section and sections 267, 441, and 706 of this title and enacting provisions set out above] or in any legislative history relating thereto shall be construed as requiring the Secretary of the Treasury or his delegate to permit an automatic change of a taxable year.”