2.26 Ark. Code R. 51-409(c)(1)
An S corporation's items of income, loss, deduction and credit for its tax year are usually allocated to its shareholders on a per-share, per-day basis. An equal part of a tax year's items is assigned to each day of the tax year, and is divided pro rata among the shares outstanding on the day to which it's assigned. However, if the corporation and all *"affected" shareholders agree, an election could be made to terminate the S corporation's tax year when a shareholder terminated his interest in the corporation. The effect of the election is that the tax year of the corporation is treated as if it consists of two tax years, with the first tax year ending on the date on which the shareholder's interest was terminated. IRC Sec. 1377(a)(2)(A). The items of income, loss, deduction and credit, determined for each separate "tax year" by closing the books, are allocated on a per-share, per-day basis to shareholders who were shareholders during the separate "tax year".
* affected shareholders include the shareholders who terminate their interests and all shareholders to whom the terminating shareholders transfer their shares during the tax year. If shares are transferred to the corporation, all persons who were shareholders during the tax year are treated as affected shareholders. IRC Sec. 1377(a)(2)(B).
2.26 Ark. Code R. 51-409(c)(1)