100 STAT. 2364
PUBLIC LAW 99-514—OCT. 22, 1986 (1) IN GENERAL.—Section 441 (relating to period for computation of taxable income) is amended by adding at the end thereof the following new subsection: "(i) TAXABLE YEAR OF PERSONAL SERVICE CORPORATIONS.—
"(1) IN GENERAL.—For purposes of this subtitle, the taxable year of any personal service corporation shall be the calendar year unless the corporation establishes, to the satisfaction of the Secretary, a business purpose for having a different period for its taxable year. For purposes of this paragraph, any deferral of income to shareholders shall not be treated as a business purpose. "(2) PERSONAL SERVICE CORPORATION.—For purposes of this subsection, the term 'personal service corporation' has the meaning given such term by section 269A03)(1), except that section 269A(b)(2) shall be applied— "(A) by substituting 'any' for 'more than 10 percent', and "(B) by substituting 'any' for '50 percent or more in value' in section 318(a)(2)(C)." (2) CONFORMING
AMENDMENT.—Section 267(a) (relating to
matching of deduction and payee income in the case of expenses and interest) is amended by adding at the end thereof the following new sentence: "For purposes of this paragraph, in the case of a personal service corporation (within the meaning of section 441(i)(2)), such corporation and any employee-owner (within the meaning of section 269A0t))(2), as modified by section 441(i)(2)) shall be treated as persons specified in subsection (b)." (d) COORDINATION WITH 52-53 WEEK PERIOD.—Section 441(f) (relating to election of year consisting of 52-53 weeks) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: "(3) SPECIAL RULE FOR PARTNERSHIPS, S CORPORATIONS, AND PERSONAL SERVICE CORPORATIONS.—The Secretary may by regu-
lation provide terms and conditions for the application of this subsection to a partnership, S corporation, or personal service corporation (within the meaning of section 441(i)(2))." (e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986. (2) CHANGE IN ACCOUNTING PERIOD.—In the case of any taxpayer required by the amendments made by this section to change its accounting period for any taxable year— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as having been made with the consent of the Secretary, and (C) with respect to any partner or shareholder of an S corporation which is required to include the items from more than 1 taxable year of the partnership or S corporation in any 1 taxable year, income in excess of expenses of such partnership or corporation for the short taxable year required by such amendments shall be taken into account ratably in each of the first 4 taxable years (including such short taxable year) beginning after December 31, 1986, unless such partner or shareholder elects to include all such income in the short taxable year.
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