Changing Tax Year to Fiscal Year Ending May 31: What You Need to Know

Understanding the Process of Changing Tax Year to Fiscal Year Ending May 31

According to the IRS, a business can change its tax year if it has a valid business reason and obtains approval from the IRS. In the case of Tonto Inc., the company has a good business reason for changing its tax year from the calendar year to a fiscal year ending May 31.

However, if the new fiscal year differs from the calendar year, the business is required to file a short-period return for the year of change. In this scenario, since Tonto Inc. wants to shift to a fiscal year ending May 31 which falls outside the calendar year, the company must file a short-period return.

The short-period return covers the seven-month period from June 1 to December 31 of the year of change. This means that even though Tonto Inc. has a solid business reason for the change, it must still file a short-period return for the seven-month period.

In conclusion, if Tonto Inc. decides to change its tax year to a fiscal year ending May 31, the company must comply with the IRS requirement of filing a short-period return for the seven-month period from June 1 to December 31 of the year of change, despite having a valid business reason for the change.