Final allocation for departing S Corp SH

[David]

S Corp shareholder terminated his interest on 10/15/14. The company had a loss YTD 10/15 and a huge profit from 10/16 - 12/31.

We allocated the SH's profit/loss on the SH's final K-1 based on the loss through 10/15 and allocated to the remaining SH his portion of the loss through 10/15 and 100%of the profit from 10/16 - 12/31.

It didn't seem fair to allocate the prorated % of the total year's profit to the terminating SH.

I thought there was an election that had to be made to do the final allocation based on profit/loss through the termination date. I can't find that statement.

Maybe I'm wrong. Is an election required? If so, where do I find it?

Thanks.

[Lynn EA USTCP in Louisiana]

The default is to allocate the annual profit/loss according to the number of days the SH was a SH. If you go to elections, click on the 1120S tab you may find an election to allocate as of specific dates, but it must be signed by all SH.

[David]

Thanks so much for your help.