D is corrent. The requirement is to determine the correct statement regarding a partnership’s tax year. A partnership must generally determine its taxable year in the following order: (1) it must adopt the taxable year used by its one or more partners owning an aggregate interest of more than 50% in profits and capital; (2) if partners owning a more than 50% interest in profits and capital do not have the same year end, the partnership must adopt the same taxable year as used by all of its principal partners; and (3) if principal partners have different taxable years, the partnership must adopt the taxable year that results in the least aggregate deferral of income to partners.
A different taxable year other than the year determined above can be used by a partnership if a valid business purpose can be established and IRS permission is received. Alternatively, a partnership can elect to use a taxable year other than the one required under the general rules in the first paragraph, if the election does not result in a deferral of income for more than 3 months. The deferral period is the number of months between the close of the elected taxable year and the close of the year that would otherwise be required under the general rules. Thus, a partnership that would otherwise be required to adopt a tax year ending December 31 could elect to adopt a fiscal year ending September 30 (3-month deferral), October 31 (2-month deferral), or November 30 (1-month deferral). Note that a partnership that makes this election must make "required payments" which are in the nature of refundable, noninterest-bearing deposits which are intended to compensate the treasury for the revenue lost as a result of the deferral period.
A is incorrect. A valid business purpose can be used to justify a different year.
B is incorrect. A year is adopted by filing the partnership’s first tax return.
C is incorrect. The selection of a partnership’s tax year is restricted to prevent the deferral of income to partners.
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