26 U.S.C. § 441 — Period for computation of taxable income

(a) Computation of taxable income. A taxpayer's taxable income is figured based on their "taxable year" — the accounting period defined in the rest of this section. (b) Taxable year. "Taxable year" means one of four things: (1) the taxpayer's regular annual accounting period, if that's a calendar year or a fiscal year; (2) the calendar year, if subsection (g) applies (the rule for taxpayers with no real accounting period); (3) the actual period covered by a return, if that return covers less than 12 months; or (4) for a DISC (a type of export-related corporation) filing a return for at least 12 months, the period figured under subsection (h). (c) Annual accounting period. This means the yearly period a taxpayer regularly uses, in their own books, to compute their income. (d) Calendar year. This means a 12-month period ending on December 31. (e) Fiscal year. This means a 12-month period ending on the last day of any month other than December. If a taxpayer has elected the special 52-53-week year described in subsection (f), "fiscal year" instead means that varying annual period. (f) Election of year consisting of 52-53 weeks. (1) General rule. A taxpayer who regularly computes income based on an annual period that varies from 52 to 53 weeks — always ending on the same day of the week — may elect to use that period as their taxable year, as long as the period ends either on the last time that weekday occurs in a calendar month, or on the date closest to the end of a calendar month. This applies to taxable years ending after this rule was enacted. (2) Special rules for 52-53-week years. When a law's effective date or a rule's applicability is tied to the first or last day of a month, a 52-53-week taxable year is treated as beginning with the calendar month that starts nearest to when the taxable year actually starts, and as ending with the calendar month that ends nearest to when it actually ends (except for one computation under section 15). When a taxpayer changes to or from a 52-53-week year, and that creates a "short period" (a partial tax year defined in section 443): if the short period is 359 days or more, or less than 7 days, the alternative-tax computation in section 443(b) doesn't apply; if it's less than 7 days, it gets folded into the following full taxable year; and if section 443(b) does apply, the taxable income for the short period gets "annualized" step by step — start with the gross income earned during the short period, subtract the deductions this chapter allows for the short period (using the special adjusted personal-exemption amount from section 443(c)), multiply that result by 365, then divide by the number of days in the short period to get the annualized income. The tax on that annualized amount is then scaled back down: the number of days in the short period divided by 365, times the tax that would be owed on the full annualized amount. (3) Special rule for partnerships, S corporations, and personal service corporations. The Secretary can write regulations setting the terms for applying this 52-53-week election to a partnership, S corporation, or personal service corporation (as defined in subsection (i)(2)). (4) Regulations. The Secretary must issue whatever regulations are needed to apply this subsection. (g) No books kept; no accounting period. Except where section 443 applies (returns for periods under 12 months), a taxpayer's taxable year is the calendar year if any of the following is true: (1) the taxpayer keeps no books; (2) the taxpayer has no annual accounting period; or (3) the taxpayer has an annual accounting period, but it doesn't qualify as a fiscal year. (h) Taxable year of DISC's. (1) A DISC's (a type of export corporation's) taxable year matches the taxable year of whichever shareholder, or group of shareholders sharing the same 12-month taxable year, holds the highest percentage of voting power. (2) If two or more shareholders or groups tie for the highest voting-power percentage, the DISC's taxable year matches that shared 12-month period. (3) The Secretary must write regulations covering ownership changes — these rules only apply again after a substantial change in ownership. (4) Voting power is based on the total combined voting power of all classes of stock entitled to vote. (i) Taxable year of personal service corporations. (1) A personal service corporation's taxable year is the calendar year, unless the corporation proves to the Secretary's satisfaction that it has a genuine business reason for using a different period. Deferring income to shareholders does not count as a valid business reason. (2) "Personal service corporation" has the meaning given in section 269A(b)(1), with two tweaks: wherever section 269A(b)(2) says "more than 10 percent," this section reads it as "any," and wherever section 318(a)(2)(C) says "50 percent or more in value," this section reads it as "any." A corporation only counts as a personal service corporation if more than 10 percent of its stock value is held by "employee-owners" under that modified definition. If the corporation is part of an affiliated group filing one consolidated return, all group members are considered together in deciding whether the corporation is a personal service corporation.