Barney, an individual, and Aldrin, Inc., a domestic C corporation, have decided to form BA, LLC. The new LLC will produce a product that Barney recently developed and patented. Barney and Aldrin, Inc., will each own a 50% capital and profits interest in the LLC. Barney is a calendar year taxpayer, while Aldrin, Inc., is taxed on a July 1 -June 30 fiscal year. The LLC does not have a -natural business year- and elects to be taxed as a partnership.

1. Determine the taxable year of the LLC under the Code and Regulations.

2. Two years after formation of the LLC, Barney sells half of his interest (25%) to Aldrin, Inc. Can the LLC retain the taxable year determined in part (a)? Why or why not?