[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.444-4]

[Page 48-49]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.444-4  Tiered structure.

    (a) Electing small business trusts. For purposes of Sec. 1.444-2T, 
solely with respect to an S corporation shareholder, the term deferral 
entity does not include a trust that is treated as an electing small 
business trust under section 1361(e). An S corporation with an electing 
small business trust as a shareholder may make an election under section 
444. This paragraph is applicable to taxable years beginning on and 
after December 29, 2000; however, taxpayers may voluntarily apply it to 
taxable years of S corporations beginning after December 31, 1996.
    (b) Certain tax-exempt trusts. For purposes of Sec. 1.444-2T, 
solely with respect to an S corporation shareholder, the term deferral 
entity does not include a trust that is described in section 401(a) or 
501(c)(3), and is exempt from taxation under section 501(a). An S 
corporation with a trust as a shareholder that is described in section 
401(a) or section 501(c)(3), and is exempt from taxation under section 
501(a) may make an election under section 444. This paragraph is 
applicable to taxable years beginning on and after December 29, 2000; 
however taxpayers may voluntarily apply it to taxable years of S 
corporations beginning after December 31, 1997.
    (c) Certain terminations disregarded--(1) In general. An S 
corporation that is described in this paragraph (c)(1) may request that 
a termination of its election under section 444 be disregarded, and that 
the S corporation be permitted to resume use of the year it previously 
elected under section 444, by

[[Page 49]]

following the procedures of paragraph (c)(2) of this section. An S 
corporation is described in this paragraph if the S corporation is 
otherwise qualified to make a section 444 election, and its previous 
election was terminated under Sec. 1.444-2T(a) solely because--
    (i) In the case of a taxable year beginning after December 31, 1996, 
a trust that is treated as an electing small business trust became a 
shareholder of such S corporation; or
    (ii) In the case of a taxable year beginning after December 31, 
1997, a trust that is described in section 401(a) or 501(c)(3), and is 
exempt from taxation under section 501(a) became a shareholder of such S 
corporation.
    (2) Procedure--(i) In general. An S corporation described in 
paragraph (c)(1) of this section that wishes to make the request 
described in paragraph (c)(1) of this section must do so by filing Form 
8716, ``Election To Have a Tax Year Other Than a Required Tax Year,'' 
and typing or printing legibly at the top of such form--``CONTINUATION 
OF SECTION 444 ELECTION UNDER Sec. 1.444-4.'' In order to assist the 
Internal Revenue Service in updating the S corporation's account, on 
Line 5 the Box ``Changing to'' should be checked. Additionally, the 
election month indicated must be the last month of the S corporation's 
previously elected section 444 election year, and the effective year 
indicated must end in 2002.
    (ii) Time and place for filing Form 8716. Such form must be filed on 
or before October 15, 2002, with the service center where the S 
corporation's returns of tax (Forms 1120S) are filed. In addition, a 
copy of the Form 8716 should be attached to the S corporation's short 
period Federal income tax return for the first election year beginning 
on or after January 1, 2002.
    (3) Effect of request--(i) Taxable years beginning on or after 
January 1, 2002. An S corporation described in paragraph (c)(1) of this 
section that requests, in accordance with this paragraph, that a 
termination of its election under section 444 be disregarded will be 
permitted to resume use of the year it previously elected under section 
444, commencing with its first taxable year beginning on or after 
January 1, 2002. Such S corporation will be required to file a return 
under Sec. 1.7519-2T for each taxable year beginning on or after 
January 1, 2002. No payment under section 7519 will be due with respect 
to the first taxable year beginning on or after January 1, 2002. 
However, a required payment will be due on or before May 15, 2003, with 
respect to such S corporation's second continued section 444 election 
year that begins in calendar year 2002.
    (ii) Taxable years beginning prior to January 1, 2002. An S 
corporation described in paragraph (c)(1) of this section that requests, 
in accordance with this paragraph, that a termination of its election 
under section 444 be disregarded will not be required to amend any prior 
Federal income tax returns, make any required payments under section 
7519, or file any returns under Sec. 1.7519-2T, with respect to taxable 
years beginning on or after the date the termination of its section 444 
election was effective and prior to January 1, 2002.
    (iii) Section 7519: required payments and returns. The Internal 
Revenue Service waives any requirement for an S corporation described in 
paragraph (c)(1) of this section to file the federal tax returns and 
make any required payments under section 7519 for years prior to the 
taxable year of continuation as described in paragraph (c)(3)(i) of this 
section, if for such years the S corporation filed its federal income 
tax returns on the basis of its required taxable year.

[T.D. 8994, 67 FR 34394, May 14, 2002]

                          Methods of Accounting

                    methods of accounting in general