http://www.taxguru.org/corps/taxyear.htm

Great article and great website.
Thanks for putting in the time to build and maintain it.

I was told by another CPA that choosing a fiscal year that is different than the calendar year raises the potential for an IRS audit.

He also told me that you had to have permission to not use the calendar year, which didn't make sense to me.

Any comments?

Thanks

It sounds like you are working with a CPA who is either ignorant or lazy.

I have never seen or heard of an IRS audit triggered by the use of a fiscal year ending in a month different than December; and I have worked with literally hundreds of such corporations.

It is true that you need IRS's permission to change a fiscal year after an 1120 has been filed. However, until the first 1120 has been submitted, the fiscal year can still be at the end of any month; regardless of what was entered on the SS-4 applying for the FEIN. Again, I have worked with hundreds of corporations where we did this and IRS never had any problems.

The only potential problem can be when a small closely held corporation is set up on the Accrual basis of accounting and there are differences between how income and expenses are treated between the 1120 and the owners' 1040s. This is why I advise people to set up their corporations on the Cash basis and make sure everything is treated consistently on both the personal and corporate books.

I hope this clears this up for you.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/05/2004 12:20:00 PM Send this post: