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Q: SECTION 1. SHORT TITLE.

This Act may be cited as the ''Small Business Tax Flexibility Act
of 2005''.

SEC. 2. QUALIFIED SMALL BUSINESSES ELECTION OF TAXABLE YEAR ENDING IN A
MONTH FROM APRIL TO NOVEMBER.

(a) In General.--Part I of subchapter E of chapter 1 of the
Internal Revenue Code of 1986 (relating to accounting periods) is
amended by inserting after section 444 the following new section:

''SEC. 444A. QUALIFIED SMALL BUSINESSES ELECTION OF TAXABLE YEAR ENDING
IN A MONTH FROM APRIL TO NOVEMBER.

''(a) General Rule.--A qualified small business may elect to have a
taxable year, other than the required taxable year, which ends on the
last day of any of the months of April through November (or at the end
of an equivalent annual period (varying from 52 to 53 weeks)).
''(b) Years for Which Election Effective.--An election under
subsection (a)--
''(1) shall be made not later than the due date (including
extensions thereof) for filing the return of tax for the first
taxable year of the qualified small business, and
''(2) shall be effective for such first taxable year or
period and for all succeeding taxable years of such qualified
small business until such election is terminated under
subsection (c).
''(c) Termination.--
''(1) In general.--An election under subsection (a) shall
be terminated on the earliest of--
''(A) the first day of the taxable year following
the taxable year for which the entity fails to meet the
gross receipts test,
''(B) the date on which the entity fails to qualify
as an S corporation, or
''(C) the date on which the entity terminates.
''(2) Gross receipts test.--For purposes of paragraph (1),
an entity fails to meet the gross receipts test if the entity
fails to meet the gross receipts test of section 448(c).
''(3) Effect of termination.--An entity with respect to
which an election is terminated under this subsection shall
determine its taxable year for subsequent taxable years under
any other method that would be permitted under subtitle A.
''(4) Income inclusion and deduction rules for period after
termination.--If the termination of an election under paragraph
(1)(A) results in a short taxable year--
''(A) items relating to net profits for the period
beginning on the day after its last fiscal year-end and
ending on the day before the beginning of the taxable
year determined under paragraph (4) shall be includible
in income ratably over the succeeding 4 taxable years,
or (if fewer) the number of taxable years equal to the
fiscal years for which the election under this section
was in effect, and
''(B) items relating to net losses for such period
shall be deductible in the first taxable year after the
taxable year with respect to which the election
terminated.
''(d) Definitions.--For purposes of this section--
''(1) Qualified small business.--The term 'qualified small
business' means an entity--
''(A)(i) for which an election under section
1362(a) is in effect for the first taxable year or
period of such entity and for all subsequent years, or
''(ii) which is treated as a partnership for the
first taxable year or period of such entity for Federal
income tax purposes,
''(B) which conducts an active trade or business or
which would qualify for an election to amortize start-
up expenditures under section 195, and
''(C) which is a start-up business.
''(2) Start-up business.--For purposes of paragraph (1)(C),
an entity shall be treated as a start-up business so long as
not more than 75 percent of the entity is owned by any person
who previously conducted a similar trade or business at any
time within the 1-year period ending on the date on which such
entity is formed. For purposes of the preceding sentence, a
person and any other person bearing a relationship to such
person specified in section 267(b) or 707(b)(1) shall be
treated as one person, and sections 267(b) and 707(b)(1) shall
be applied as if section 267(c)(4) provided that the family of
an individual consists of the individual's spouse and the
individual's children under the age of 21.
''(3) Required taxable year.--The term 'required taxable
year' has the meaning given to such term by section 444(e).
''(e) Tiered Structures.--The Secretary shall prescribe rules
similar to the rules of section 444(d)(3) to eliminate abuse of this
section through the use of tiered structures.''.
(b) Conforming Amendment.--Section 444(a)(1) of such Code is
amended by striking ''section,'' and inserting ''section and section
444A''.
(c) Clerical Amendment.--The table of sections for part I of
subchapter E of chapter 1 of such Code is amended by inserting after
the item relating to section 444 the following new item:

''Sec. 444A. Qualified small businesses election of taxable year ending
in a month from April to November.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2005.
A:
Small Business Tax Flexibility Act of 2005 - Amends the Internal Revenue Code to permit certain small start-up businesses to elect a taxable year, other than the required taxable year, which ends on the last day of any of the months of April through November (or at the end of an equivalent annual period).