What Is Form 8716 and What Is It Used For?

Form 8716, “Election to Have a Tax Year Other Than a Required Tax Year,” is filed with the Internal Revenue Service by certain business structures. Partnerships, S corporations, and personal service corporations (PSCs) use this form to adopt a fiscal tax year that differs from their required tax year. This election, made under Internal Revenue Code Section 444, allows a business to align its tax reporting period with its operational cycle instead of the standard calendar year.

Understanding the Need for a Different Tax Year

For tax purposes, the IRS requires S corporations and PSCs to use a calendar year ending December 31. The required year for partnerships is determined by the tax years of its partners, which also often results in a calendar year. This standardization is intended to prevent the deferral of income tax by the entity’s owners.

However, some businesses have operational cycles that do not align well with a calendar year. For instance, a seasonal retailer might have its busiest period from September to December, with returns and final accounting extending into January. For such a business, a fiscal year ending on January 31 would be a more “natural business year,” as it would encompass the entire busy season within one accounting period.

This election provides a path for these businesses to use a more suitable fiscal year without needing to prove a specific business purpose to the IRS, which is a more complex process.

Information Required for Form 8716

To complete Form 8716, which should be the most current version from the IRS website, a business must provide several key details. The form requires the following information:

• The business’s legal name, Employer Identification Number (EIN), and mailing address
• The entity’s classification as a partnership, S corporation, or PSC
• The tax year the business is electing and its specific ending date
• The ending date of the business’s required tax year as determined under tax code sections like 706 for partnerships or 1378 for S corporations

A central component of the form is calculating the “deferral period.” This is the number of months between the end of the desired fiscal year and the end of the required tax year. For example, if a business with a December 31 required year-end wants a fiscal year ending September 30, the deferral period is three months. This period cannot be longer than three months.

An authorized individual, such as a partner or corporate officer, must sign the form under penalties of perjury.

Filing Deadlines and Submission Instructions

The deadline for filing Form 8716 is the earlier of two dates: the 15th day of the fifth month following the month that includes the first day of the elected tax year, or the due date (without extensions) of the entity’s income tax return for the first year the election is to be effective. For example, if a business wants to adopt a fiscal year beginning October 1, 2024, the first date is March 15, 2025. If the short-period tax return for the new fiscal year is due before that, the earlier date would be the deadline.

The completed form must be mailed to the IRS service center designated for the state where the entity’s principal place of business is located. The instructions for Form 8716 list the correct mailing addresses. A copy of the filed Form 8716 should also be attached to the income tax return (e.g., Form 1065 for partnerships or Form 1120-S for S corporations) for the first year the election is in effect.

Once Form 8716 is filed, the election is considered automatically accepted unless the IRS notifies the filer that it has been denied. No formal approval notice is sent by the IRS. The entity should proceed as if the new fiscal year is approved and begin filing its tax returns accordingly, adhering to the new year-end date.

Required Payments After Making the Election

To counteract the tax deferral advantage gained by using a fiscal year, partnerships and S corporations must make an annual “required payment” to the IRS. This payment is not a tax but is better understood as an interest-free deposit held by the Treasury to cover the taxes that would have been paid had the entity used a calendar year.

This annual payment is calculated and submitted using Form 8752, “Required Payment or Refund Under Section 7519.” This form must be filed each year the election is in effect, with a due date of May 15. The calculation on Form 8752 is based on the entity’s net income from the prior fiscal year and the highest individual income tax rate. If the required payment is more than $500, it must be paid when the form is filed.

Personal service corporations that make the election do not file Form 8752 but have a different obligation under Section 280H. They must meet certain minimum distribution requirements for payments made to their employee-owners. Failure by any electing entity to meet these ongoing payment or distribution requirements can result in the termination of the election.