Application To Adopt, Change, or Retain a Tax Year

Part I-General Information

Name

If the application is filed for a husband and wife who file a joint income tax return, the names of both should appear in the heading.

Identification Number

Individuals enter their social security number (SSN) in this block. If the application is for a husband and wife who file a joint return, enter both SSNs. However, if one or both are engaged in a trade or business, enter the employer identification number (EIN) instead of the SSNs.

All other applicants enter their EIN in this block.

If the applicant does not have an EIN or SSN, it should apply for one on Form SS-4 Application For Employer Identification Number or Form SS-5 Application for a Social Security Card. Form SS-4 can be obtained at Social Security Administration (SSA) offices or by calling 1-800-TAX-Form. Form SS-5 can be obtained at SSA offices or by calling the SSA at 1-800-772-1213. If the applicant has not received its EIN or SSN by the time the application is due, write Applied for in the space for the EIN/SSN . See Pub. 583, Starting a Business and Keeping Records.

Address

Include the suite, room, or other unit number after the street address.

If the Post Office does not deliver mail to the street address and the applicant has a P.O. box, show the box number instead.

Person To Contact

The person to contact must be the person authorized to sign the Form 1128, or the applicant's authorized representative. If the person to contact is an agent for the applicant, attach a power of attorney to the application. For this purpose, use Form 2848, Power of Attorney and Declaration of Representative.

Line 1. Check all applicable boxes to indicate the type of entity filing this application. For example, an entity that is a domestic corporation may also be a regulated investment company (RIC). That entity would check both the Domestic corporation box and the Other box, and write, RIC under sec. 851 on the dotted line.

Lines 2a and 2b. A 52-53-week tax year must end on the date a specified day of the week last occurs in a particular month or on the date that day of the week occurs nearest to the last day of a particular calendar month. If the requested year is a 52-53-week tax year, describe the year (e.g., last Saturday in December or Saturday nearest to December 31).

Line 2c. The required short period return must begin on the day following the close of the old tax year and end on the day before the first day of the new tax year. In its first year, the tax year generally starts when business operations begin.

A corporation's tax year begins at the earliest of the following:

• The date it first has shareholders,
• The date it first has assets, or
• The date it first begins doing business. The initial year ends on the day before the first day of the new tax year.

Line 8. Applicants filing Form 1128 to request an expeditious approval for a change in tax year under Rev. Procs. 2000-11, 87-32, 66-50, 85-58, or 76-10 are not required to pay a user fee when Form 1128 is filed on time.

Applicants filing Form 1128 to request a letter ruling on a change in tax year under Rev. Proc. 2000-1 must pay a $600 user fee. A request for an exempt organization letter ruling on a change in tax year under Rev. Proc. 2000-8, 2000-1 I.R.B. 230, requires payment of a $140 user fee.

A separate $700 user fee is also required for applicants filing a letter ruling request for an extension of time to file under Regulations section 301.9100-3 (including requests under Rev. Procs. 2000-11, 87-32, and 66-50). Note: The user fees referred to in the above paragraphs are published in Rev. Proc. 2000-1 (exempt organizations, see Rev. Proc. 2000-8), or an annual update. These amounts are subject to change annually. See Rev. Proc. 2000-1 or 2000-8 or annual update for the latest listings of user fees.

The annual updates are published as Revenue Procedures in the Internal Revenue Bulletin. The Internal Revenue Bulletins can be found on the IRS web page, www.irs.gov, under the heading Tax Information for Business.

Payment of the user fee (check or money order made payable to the United States Treasury) must be sent with Form 1128 at the time the form is filed. See Rev. Proc. 2000-1 for more information.

Part II-Expeditious
Approval Request

Note: A user fee is not required if Form 1128 is filed under any of the revenue procedures listed below.

Complete Part II if the applicant can use the expeditious or automatic approval rules under one of the revenue procedures listed below and the application is filed on time.

If the applicant does not qualify for expeditious approval, a ruling must be requested. See Part III for more information.

If the Service Center denies approval because Form 1128 was not filed on time, the applicant may want to request relief under Regulations section 301.9100-3, discussed earlier under Late Applications on page 2, by completing Part III, as discussed on page 4, and sending Form 1128 to the National Office for consideration.

Rev. Proc. 2000-11

Generally, this revenue procedure applies to a corporation, including a homeowners association, requesting consent to change its annual accounting period. The common parent of a consolidated group may change the group's annual accounting period under this revenue procedure if every member of the consolidated group meets all the requirements and complies with all the conditions of this revenue procedure.

This revenue procedure also applies to a corporation (including members of consolidated groups) that wants to change from a 52-53-week tax year to a tax year that ends with reference to the same month, and vice versa, and a CFC (as defined in section 957) that wants to revoke its one-month deferral election (section 898(c)(1)(B)) and change its tax year to the tax year of the majority U.S. shareholder year (as defined in section 898(c)(1)(C))

This revenue procedure does not apply to a corporation that:

1. Has changed its annual accounting period at any time within the 6 calendar years ending with the calendar year that includes the beginning of the short period required to effect the change. For this purpose, the following changes will not be considered a change in annual accounting period:
   1. A change in accounting period by a subsidiary to its common parent's taxable year in order to comply with the common tax year requirement of Regulations section 1.1502-76(a)(1). See Regulations section 1.442-1;
   2. Any prior change in accounting period by a majority-owned, newly acquired subsidiary that wants to change to the tax year of its domestic or foreign parent with which it does not file consolidated tax returns in order to file consolidated financial statements, provided the change is made within 12 months of the acquisition. For purposes of this subsection, majority-owned means ownership that satisfies the test of section 1504(a)(2), substituting more than 50 percent for at least 80 percent;
   3. A change from a 52-53-week tax year to a tax year that ends with reference to the same month, and vice versa;
2. Is a member of a partnership or a beneficiary of a trust or an estate (collectively referred to as pass-through entities) as of the end of the short period. However, an interest in a pass-through entity will be disregarded for this purpose if any of the following conditions are met:
   1. The partnership in which the corporation is a majority interest partner (i.e., a partner having an interest in the partnership's profits and capital of more than 50 percent) would be required to change its tax year pursuant to section 706(b) to the new tax year of the corporation. See section 5.08 of this revenue procedure for a special term and condition related to this exception;
   2. The new tax year of the corporation would result in no change in or less deferral (as described in Temporary Regulations section 1.706-1T(a)(2)) from the pass-through entity than the present tax year of the corporation. If the pass-through entity is a partnership, the corporation should compare the existing deferral period (between the partnership's and the corporation's current tax years) with the new deferral period (between the tax year of the partnership that would be required under section 706 and the corporation's new tax year). See section 4.04 of Rev. Proc. 2000-11 for an example of this rule; or
   3. For pass-through entities not qualifying for the exceptions in either section 4.02(a) or 4.02(b) of Rev. Proc. 2000-11, the pass-through entity in which the corporation has an interest has been in existence for at least 3 tax years and the interest is de minimis. For this purpose, an interest in a pass-through entity is de minimis only if:
      1. For each of the prior 3 tax years of the corporation, the amount of income (including ordinary income or loss, capital gains or losses, rents, royalties, interest, or dividends) from such pass-through entity is less than or equal to (A) 5 percent of the corporation's gross receipts (or, in the case of a member of a consolidated group, the consolidated group's gross receipts) for those tax years, and (B) $500,000; and
      2. The amount of income from all such pass-through entities in the aggregate is less than or equal to the amounts described in (A) and (B) above. See section 4.04 of Rev. Proc. 2000-11 for an example of this rule;
3. Is a shareholder of a FSC or IC-DISC, as of the end of the short period. However, an interest in a FSC or IC-DISC is disregarded if either of the following conditions is met:
   1. The FSC or IC-DISC in which the corporation is the principal shareholder (i.e., the shareholder with the highest percentage of voting power as defined in section 441(h)) would be required to change its tax year pursuant to Temporary Regulations section 1.921-1T(b)(4) and (b)(6) to the new tax year of the corporation. See section 5.08 of Rev. Proc. 2000-11 for a special term and condition related to this exception; or
   2. The new tax year of the corporation would result in no change in or less deferral of income (as determined under the principals of Temporary Regulation section 1.706-1T (a)(2)) from the FSC or IC-DISC than the present tax year of the corporation;
4. Is a FSC or an IC-DISC. See Temporary Regulations section 1.921-1T(b)(4) for rules regarding automatic changes of the annual accounting period of a FSC or IC-DISC to the tax year of its principal shareholder;
5. Is an S corporation (as defined in Regulations section 1361). See Rev. Proc. 87-32 for procedures to follow for certain automatic changes in the annual accounting period of an S corporation;
6. Attempts to make an S corporation election for the tax year immediately following the short period, unless the change is to a permitted S corporation year. For this purpose, a permitted S corporation year includes a calendar year, a tax year permitted under section 444, or an ownership tax year or natural business year (as defined in Rev. Proc. 87-32, 1987-2 C.B. 396);
7. Is a personal service corporation (as defined in section 441(i)). See Rev. Proc. 87-32 for procedures to follow for certain automatic changes in the annual accounting period of a personal service corporation;
8. Is a controlled foreign corporation (CFC) (as defined in section 957) or a foreign personal holding company (FPHC) (as defined in section 552);
9. Is a shareholder of a CFC or FPHC. However, an interest in a CFC or FPHC is disregarded if the shareholder is the majority U.S. shareholder (i.e., the shareholder that meets the ownership requirement of section 898(b)(2)(A)) and the CFC or FPHC would be required to change its tax year to the new tax year of the shareholder. See section 5.08 of Rev. Proc. 2000-11 for a special term and condition related to this exception;
10. Is a tax-exempt organization, other than an organization exempt from federal income tax under section 521, 526, 527, or 528. See Rev. Proc. 85-58, 1985-2 C.B. 740, for procedures to follow in changing an annual accounting period for a tax-exempt organization not meeting the scope of this revenue procedure.
11. Is a direct or indirect shareholder of a passive foreign investment company (PFIC) that is a qualified electing fund (within the meaning of section 1295) with respect to be the shareholder;
12. Is a PFIC that U.S. persons (who own directly or indirectly, in the aggregate, 10 percent or more of the company) elected under section 1295 to be treated as a qualified electing fund;
13. Is a corporation which has in effect an election under section 936; or
14. Is a cooperative association (within the meaning of section 1381(a)) with a loss in the short period required to effect the change of annual accounting period, unless all the patrons of the cooperative association are substantially the same in the year before the change of annual accounting period, in the short period required to effect the change, and in the year following the change. For purposes of this subsection, substantially the same means that ownership of more than 90 percent of the cooperative association's stock is owned by the same members.

Rev. Proc. 87-32

A partnership, S corporation, or PSC may be able to change or retain its tax year by following Rev. Proc. 87-32. Under section 4.01(1) of the procedure, the entity determines its natural business year. The entity must attach to Form 1128 a statement showing the amount of gross receipts for the most recent 47 months as required by section 4.03(3) of the revenue procedure. Section 4.01(2) provides expeditious approval for an S corporation to adopt, change to, or retain a tax year that coincides with the tax year used by the shareholders. The representations (Form 1128, Part II, line 2) highlight the requests provided for in section 4 of the revenue procedure.

Note: Generally, to retain its tax year, the entity must have a valid section 444 election in effect.

Rev. Proc. 66-50

Use this procedure if:

• The entity is an individual changing from a fiscal year to a calendar year;
• Income is received only from wages, salaries, interest, dividends, capital gains, pensions, annuities, rents, or royalties; and
• All the rules of Rev. Proc. 66-50 are met.

Rev. Proc. 85-58 or 76-10

Use either procedure if the entity is a tax-exempt organization requesting a change under the simplified method of Rev. Proc. 85-58 or Rev. Proc. 76-10.

Under Rev. Proc. 85-58, an organization exempt under section 501(a) does not have to file Form 1128 unless:

• The organization was required to file an annual information return or Form 990-T, at any time during the last 10 calendar years, and
• The organization has changed its tax year at any time within the last 10 calendar years ending with the calendar year that includes the beginning of the short period resulting from the change of tax year.

An organization described in section 501(c) or (d) is exempt from tax under section 501(a) unless the exemption is denied under section 502 or 503.

Rev. Proc. 85-58 does not apply to:

• Farmers' cooperatives exempt from Federal income tax under section 521,
• Organizations described in sections 526, 527, and 528,
• Organizations described in section 401(a), and
• Organizations requesting a change in a tax year on a group basis.

A central organization should follow Rev. Proc. 76-10 to apply for a group change in tax year for all its subordinate organizations.

Rev. Proc. 76-10 does not apply to:

• Farmers' cooperatives exempt from Federal income tax under section 521,
• Certain organizations that have unrelated business taxable income defined in section 512(a), and
• Organizations that are private foundations defined in section 509(a).

Part III-Ruling Request

Do not file a tax return using the requested tax year until this application is approved.

Complete Part III if the applicant cannot file under the expeditious approval rules listed in Part II on page 3 or if the application is late.

Rev. Rul. 87-57. If a partnership, S corporation, or PSC wants to adopt, change, or retain a tax year by establishing a business purpose but cannot qualify for the expeditious approval rules, refer to Rev. Rul. 87-57, 1987-2 C.B. 117. The ruling discusses various facts and circumstances in which the taxpayer may or may not establish a business purpose for using a tax year.

Section 444 election. If approval is requested to use a particular tax year based on a business purpose, a partnership, S corporation, or PSC, if otherwise qualified, may file a backup section 444 election. If the business purpose request is later denied, the partnership, S corporation, or PSC, if otherwise qualified, will be required to activate the backup section 444 election. The election is made on Form 8716. See Temporary Regulations section 1.444-3T for additional information.

Section A - General Information

All applicants must complete Section A to request a ruling on an adoption, change to, or retention of a tax year.

Line 1a. For purposes of line 1a the following are not considered changes in tax years:

• Any prior change in accounting period by a majority-owned, newly acquired subsidiary that wants to change to the tax year of its domestic or foreign parent with which it does not file consolidated tax returns in order to file consolidated financial statements, provided the change is made within 12 months of the acquisition. For purposes of this subsection, majority-owned means ownership that satisfies the test of section 1504(a)(2), substituting more than 50 percent for at least 80 percent;
• A change from a 52-53-week tax year to a tax year that ends with reference to the same month, and vice versa.
• A subsidiary that is required to change its tax year in order to adopt the common parent's annual tax year for the first consolidated return year for which the subsidiary's income is includible in the consolidated return under Regulations section 1.1502-76(a).

Line 7. If the applicant is requesting a ruling based on its natural business year discussed in Rev. Proc. 87-32 (for partnerships, S corporations, or PSCs) or in Rev. Proc. 74-33, 1974-2 C.B. 489 (for all other applicants), attach to Form 1128 a statement that sets forth the gross receipts referred to in section 4.03(3) of Rev. Proc. 87-32 or the gross receipts and inventory costs referred to in section 4 of Rev. Proc. 74-33.

Section B - Corporations (other than S corporations and controlled foreign corporations)

Corporations must complete Section B and any other section that applies to that particular entity. For example, a PFIC completes Section B and attaches the statement required by Section H. Complete Sections B and F for a tax-exempt organization that is a corporation.

Section C - S Corporations

An S corporation must have a permitted tax year unless it has elected under section 444 to have a tax year other than the required tax year. A permitted tax year is:

1. A tax year that ends on December 31, or
2. Any other tax year if the corporation can establish a business purpose to the satisfaction of the IRS.

For purposes of 2, any deferral of income to shareholders will not be treated as a business purpose. For more information, see Rev. Proc. 87-32 and Rev. Rul. 87-57.

If any shareholder is applying for a corresponding change in tax year, that shareholder must file a separate Form 1128 to get advance approval to change its tax year.

Section D - Partnerships

A partnership must obtain advance approval from the IRS to adopt, change, or retain a tax year unless it is not required to file Form 1128, or it meets one of the expeditious approval rules discussed in Part II on page 3. See Who Does Not File on page 1.

Partners must also get separate advance approval to change their tax years.

Line 1. Enter the first date a business transaction resulted in a tax consequence, such as receiving income or incurring an expense.

Section E - Controlled Foreign Corporations

A CFC, in general, must obtain advance approval from the IRS to change a tax year unless the CFC is permitted to change its tax year in accordance with Rev. Proc. 90-26 or Notice 95-13 (see instruction under Who Does Not File on page 1). A CFC that is revoking its 1-month deferral election that was made under section 898(c)(1)(C) must obtain prior approval from the IRS by completing Parts I and III of Form 1128.

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