Page:United States Statutes at Large Volume 100 Part 3.djvu/555

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2363

"(A) PARTNERSHIP TREATED AS TAXPAYER.—The taxable

year of a partnership shall be determined as though the partnership were a taxpayer. "(B) TAXABLE YEAR DETERMINED BY REFERENCE TO PART-

NERS.—Except as provided in subparagraph (C), a partnership shall not have a taxable year other than— "(i) the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent, "(ii) if there is no taxable year described in clause (i), the taxable year of all the principal partners of the partnership, or "(iii) if there is no taxable year described in clause (i) or (ii), the calendar year or such other period as the Secretary may prescribe in regulations. "(C) BUSINESS PURPOSE.—A partnership may have a taxable year not described in subparagraph (B) if it establishes, to the satisfaction of the Secretary, a business purpose therefor. For purposes of this subparagraph, any deferral of income to partners shall not be treated as a business purpose." (2) DETERMINATION OF MAJORITY INTEREST.—Section 706(b) is amended by adding at the end thereof the following new paragraph: "(4) APPLICATION OF MAJORITY INTEREST RULE.—Clause (i) of

paragraph (I)(B) shall not apply to any taxable year of a partnership unless the period which constitutes the taxable year of 1 or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50 percent has been the same for— "(A) the 3-taxable year period of such partner or partners ending on or before the beginning of such taxable year of the partnership, or "(B) if the partnership has not been in existence during all of such 3-taxable year period, the taxable years of such partner or partners ending with or within the period of existence. This paragraph shall apply without regard to whether the same partners or interests are taken into account in determining the 50 percent interest during any period." (3) CONFORMING AMENDMENT.—The heading for section 706(b) is amended by striking out "ADOPTION OF". 01)) S CORPORATION.—

(1) IN GENERAL.—Section 1378(a) (relating to taxable year of S corporation) is amended to read as follows: "(a) GENERAL RULE.—For purposes of this subtitle, the taxable year of an S corporation shall be a permitted year." (2) BUSINESS PURPOSE.—Section 1378(b) (defining permitted year) is amended by adding at the end thereof the following new flush sentence: "For purposes of paragraph (2), any deferral of income to shareholders shall not be treated as a business purpose." (3) CONFORMING AMENDMENT.—Section 1378 is amended by

striking out subsection (c). (c) PERSONAL SERVICE CORPORATION.—

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