8508 / When can an individual claim retroactive Social Security benefits?

Although most individuals report tax liability using a calendar year, it is possible to use a fiscal year. In any event, the year used for reporting tax liability must generally correspond to the taxpayer’s accounting period.² Thus, if the taxpayer keeps books on a fiscal year basis the taxpayer cannot determine tax liability on a calendar year basis. If the taxpayer keeps no books, however, reporting on a calendar year basis is required.³ Once the taxpayer has chosen a tax year, it cannot be changed without the permission of the IRS.⁴ A principal partner cannot change to a taxable year other than that of the partnership unless the principal partner establishes, to the satisfaction of the IRS, a business purpose for doing so.⁵

A personal service corporation is required to use the calendar year for computing tax liability unless it can establish a valid business purpose for using a different period. The code specifically provides that deferral of income to shareholders does not constitute a valid business purpose.⁶

Under certain circumstances, partnerships and S corporations are required to use the calendar year for computing income tax liability.⁷