Question

In: Accounting

A personal service corporation (PSC) generally is limited to the calendar year for reporting purposes. One...

A personal service corporation (PSC) generally is limited to the calendar year for reporting purposes. One exception to this rule is when the PSC can demonstrate a business purpose for fiscal year end. Discuss the business purpose exception, including examples when the standard is and is not satisfied. Support your research with proper citation of tax authority.

Solutions

Expert Solution

Exceptions. A PSC may have a taxable year other than its required taxable year (i.e., a fiscal year) if it makes an election under section 444, elects to use a 52-53-week taxable year that ends with reference to the calendar year or a taxable year elected under section 444, or establishes a business purpose for such fiscal year and obtains the approval of the Commissioner under section 442.

Example 1.

X, whose taxable year ends on January 31, 2001, becomes a PSC for its taxable year beginning February 1, 2001, and does not obtain the approval of the Commissioner for using a fiscal year. Thus, for taxable years ending before February 1, 2001, this section does not apply with respect to X. For its taxable year beginning on February 1, 2001, however, X will be required to comply with paragraph (a) of this section. Thus, unless X obtains approval of the Commissioner to use a January 31 taxable year, or makes a section 444 election, X will be required to change its taxable year to the calendar year under paragraph (b) of this section by using a short taxable year that begins on February 1, 2001, and ends on December 31, 2001. Under paragraph (b)(1) of this section, X may obtain automatic approval to change its taxable year to a calendar year. See § 1.442-1(b).


Related Solutions

Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is...
Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is owned 100% by Jesse Smith.   Jesse Smith is quite wealthy - he has over $3 million in a personal savings account which is currently earning 2 one hundredths of 1% interest (or .0002 rate resulting in $600 per year). He also has many other investments. Acme Corporation has $300,000 of current assets. Acme has Accounts Payable of $40,000 and various Payroll liabilities totaling $109,000....
Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is...
Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is owned 100% by Jesse Smith. Jesse Smith is quite wealthy - he has over $3 million in a personal savings account which is currently earning 2 one hundredths of 1% interest (or .0002 rate resulting in $600 per year). He also has many other investments. Acme Corporation has $300,000 of current assets. Acme has Accounts Payable of $40,000 and various Payroll liabilities totaling $109,000....
Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is...
Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is owned 100% by Jesse Smith. Jesse Smith is quite wealthy - he has over $3 million in a personal savings account which is currently earning 2 one hundredths of 1% interest (or .0002 rate resulting in $600 per year). He also has many other investments. Acme Corporation has $300,000 of current assets. Acme has Accounts Payable of $40,000 and various Payroll liabilities totaling $109,000....
Sun Corporation ( a calendar -year corporation) purchased and placed in service the following assets during...
Sun Corporation ( a calendar -year corporation) purchased and placed in service the following assets during 2018 Date Acquired Asset Description Cost February 18 Warehouse Building $ 2,450,00 June 2 Used Automobile $ 30,000 August 18 New computer equipment 220,000 September 20 New machinery 1,050,000 December 15 Used office equipment $ 885,000 All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional...
Purple Corporation, an exterminating company, is a calendar year taxpayer. It contracts to provide service to...
Purple Corporation, an exterminating company, is a calendar year taxpayer. It contracts to provide service to homeowners once a month under a one-, two-, or three-year contract. On April 1 of the current year, the company sold a customer a one-year contract for $120. How much of the $120 is taxable in the current year if the company is an accrual basis taxpayer. If the $120 is payment on a two-year contract, how much is taxed in the year the...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $668,000 for purposes of computing the...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $668,000 for purposes of computing the §179 expense. The company acquired the following assets during 2019: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) Placed in Asset Service Basis Machinery September 12 $ 2,272,250 Computer equipment February 10 265,925 Furniture April 2 883,825 Total $ 3,422,000 a. What is the maximum amount of §179 expense TDW may deduct for 2019? b. What is the maximum...
Assume that TDW Corporation (calendar-year-end) has 2018 taxable income of $650,000 for purposes of computing the...
Assume that TDW Corporation (calendar-year-end) has 2018 taxable income of $650,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018:   Asset Placed in Service Basis Machinery September 12 $2,270,000 Computer Equipment February 10 $263,000 Furniture April 2 $880,000 Total $3,413,00 a. What is the maximum amount of §179 expense TDW may deduct for 2018? b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2018 on the assets it...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $698,000 for purposes of computing the...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $698,000 for purposes of computing the §179 expense. The company acquired the following assets during 2019: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) Placed in Asset Service Basis Machinery September 12 $ 2,276,000 Computer equipment February 10 270,800 Furniture April 2 890,200 Total $ 3,437,000 b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2019 on the assets...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $680,000 for purposes of computing the...
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $680,000 for purposes of computing the §179 expense. The company acquired the following assets during 2019: Asset Placed in Service Basis Machinery Sept. 12 2,273,750 Computer Equipment Feb. 10 267,875 Furniture April 2 886,375 Total 3,428,000 What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2019 on the assets it placed in service in 2019, assuming no bonus depreciation?
Assume that TDW Corporation (calendar-year-end) has 2018 taxable income of $674,000 for purposes of computing the...
Assume that TDW Corporation (calendar-year-end) has 2018 taxable income of $674,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) Placed in Asset Service Basis Machinery September 12 $ 2,273,000 Computer equipment February 10 266,900 Furniture April 2 885,100 Total $ 3,425,000 b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2018 on the assets...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT