PROCEDURES FOR EXPEDITIOUS APPROVAL OF CHANGE OF CORPORATIONS' ANNUAL ACCOUNTING PERIOD

Rev. Proc. 84-34

SECTION 1. PURPOSE

The purpose of this revenue procedure is to provide a procedure whereby certain corporations may expeditiously obtain approval of a change of their annual accounting period.

SECTION 2. BACKGROUND

01 Section 1.442-1(a)(1) of the Income Tax Regulations provides that a taxpayer must obtain prior approval from the Commissioner for a change of a taxpayer's annual accounting period or the change must be authorized under the regulations.

02 Section 1.442-1(b)(1) of the regulations provides that in order to secure prior approval of a change of a taxpayer's annual accounting period, the taxpayer must file an application on Form 1128, Application for Change in Accounting Period, with the Commissioner of Internal Revenue, Washington, D.C. on or before the 15th day of the second calendar month following the close of the taxpayer's short tax year. Section 1.442-1(b)(1) also provides that approval will not be granted unless the taxpayer and the Commissioner agree to the terms, conditions and adjustments under which the change will be effected.

03 Section 1.442-1 (c)(1) of the regulations provides a special rule for certain corporations by which a corporation may change its annual accounting period without the prior approval of the Commissioner if all the conditions in section 1.442-1(c)(2) are satisfied certain filing requirements are met, and the corporation is not of the type described in section 1.442-1(c)(4) and (5), or section 1.860-1.

04 Section 1.442-1(c)(2) of the regulations provides that certain corporations may change their annual accounting periods without the prior approval of the Commissioner if:

(1) the corporation has not changed its annual accounting period within the ten calendar year period ending with the calendar year that includes the beginning of the short period required to effect the change of accounting period;

(2) the short period required to effect the change of annual accounting period is not a tax year in which the corporation has a net operating loss as defined in section 172 of the Internal Revenue Code;

(3) the taxable income of the corporation for the short period required to effect the change in accounting period is, if placed on an annual basis, 80 percent or more of the taxable income of the corporation for the tax year immediately preceding the short period;

(4) the corporation, if it had a special status (as defined in section 1.442-1(c)(2)(iv) of the regulations) either for the short period or for the tax year immediately preceding the short period, must have the same special status for both the short period and such tax year; and

(5) the corporation does not attempt to make an S corporation election (under section 1362 of the Code) that purports to initially become effective for the tax year immediately following the short period.

SECTION 3. SCOPE

01 This revenue procedure applies to a corporation that:

(1) can not satisfy all the conditions of section 1.442-1(c)(2) of the regulations regarding a change of an annual accounting period without the prior approval of the Commissioner;

(2) has not changed its annual accounting period at any time within the ten calendar years ending with the calendar year that includes the beginning of the short period required to effect the change of annual accounting period;

(3) is not a (a) member of a partnership, (b) beneficiary of a trust or an estate, or (c) shareholder of a DISC (Domestic International Sales Corporation);

(4) is not an S corporation (as defined in section 1361 of the Code) and does not attempt to make an S corporation election that purports to initially become effective for the tax year immediately following the short period;

(5) is not a DISC (as defined in section 992(a)(1) of the Code);

(6) is not a controlled foreign corporation (as defined in section 957 of the Code);

(7) is not a foreign corporation that meets the stock ownership requirements of a foreign personal holding company (as defined in section 552 of the Code);

(8) is not a tax-exempt organization; and

(9) is not a cooperative (as defined in section 1381(a) of the Code).

SECTION 4. APPLICATION

01 In accordance with section 1.442-1(a)(1) and 1.442-1(b)(1) of the regulations, approval is hereby granted under the specific circumstances described below to those corporations not excluded by section 3 of this revenue procedure to change their annual accounting periods. Approval is granted beginning with the short period required to effect the change. The corporation must complete and file a current Form 1128 in the manner described in section 6 of this revenue procedure and otherwise comply with the provisions of this revenue procedure.

02 Corporations desiring to change their annual accounting period pursuant to this revenue procedure must comply with the following conditions.

(1) The short period required to effect the change in annual accounting period shall begin with the day following the close of the old tax year and shall end with the day preceding the first day of the new tax year.

(2) The books of the corporation must be closed as of the last day of the new tax year. Returns for subsequent years must be made on the basis of a full 12-months or 52-53 weeks ending on the last day of the new tax year. The corporation must compute its income and keep its books and records (including financial reports and statements for credit purposes) on the basis of the new tax year.

(3) Taxable income of the corporation for the short period must be annualized and the tax computed in accordance with the provisions of section 443(b) of the Code and section 1.443-1(b) of the regulations.

(4) If the short period required to effect the change of annual accounting period is a tax year in which the corporation has a net operating loss, the net operating loss is to be deducted ratably over a 6-year period beginning with the first tax year after the short period unless the corporation meets one of the following exceptions:

(a) If the net operating loss resulting from the short period is $10,000 or less, the net operating loss can be carried back or carried over in accordance with section 172(b) of the Code; or

(b) If the net operating loss resulting from a short period of 9 months or longer is greater than $10,000 and is less than the net operating loss for a full 12-month period beginning with the first day of the short period, the net operating loss can be carried back or carried over in accordance with section 172(b) of the Code.

(5) If there is an unused investment credit or any other credit for the short period, the corporation must carry the unused credit(s) forward. Unused credit(s) from the short period may not be carried back.

SECTION 5. COMPLIANCE WITH CONDITIONS

01 In accordance with section 1.442-1(b)(1) of the regulations, approval of a change of a taxpayer's annual accounting period will not be granted unless the taxpayer and the Commissioner agree to the terms, conditions and adjustments under which the change will be effected. In connection with the change of a corporation's annual accounting period pursuant to this revenue procedure, all such terms, conditions, and adjustments are as set forth herein.

02 Corporations changing their annual accounting period pursuant to this revenue procedure without complying with or satisfying all the conditions of this revenue procedure will be deemed to have initiated the change in annual accounting period without the consent of the Commissioner.

03 In the case of changes in annual accounting periods by members of affiliated groups that file consolidated tax returns, each member of the affiliated group must be eligible to use the provisions of this revenue procedure and comply with its conditions.

SECTION 6. MANNER OF EFFECTING THE CHANGE

01 Corporations desiring to change their annual accounting period pursuant to the provisions of this revenue procedure must complete and file a current Form 1128 with the Director, Internal Revenue Service Center where the corporation files its income tax return.

02 The application must be filed on or before the 15th day of the second calendar month following the close of the short period for which a return is required in order to effect the change of annual accounting period. Unless a letter is received by the corporation from the Director of the Internal Revenue Service Center denying approval because the Form 1128 is either not timely filed, or does not comply with the provisions of this revenue procedure, it may be assumed that the change has been approved. The corporation must attach a copy of the application to the return filed for the short period.

03 In order to assist in the processing of the change in annual accounting period and to ensure proper handling, reference to this revenue procedure shall be made a part of the Form 1128 by either typing or legibly printing the following statement at the top of page 1 of the Form 1128: "FILED UNDER REV. PROC. 84-34."

04 The signature of the person requesting the change in annual accounting period must appear in the space provided for it on the Form 1128. For example, an officer must sign on behalf of a corporation, a general partner on behalf of a partnership, a trustee on behalf of a trust, or a sole proprietor. See the signature requirements set forth in the General Instructions attached to a current Form 1128 for those who are to sign. If an agent is authorized to represent the taxpayer before the Service, to receive the original or a copy of correspondence concerning the request, or to perform any other act(s) regarding the application on behalf of the taxpayer, a power of attorney reflecting such authorization(s) must be attached to the application. Taxpayer's representatives without a power of attorney to represent the taxpayer as indicated in this subsection will not be given any information about the application. See section 6103 of the Code. If the taxpayer is a member of an affiliated group that has elected to file a consolidated federal income tax return, a current Form 1128 submitted on behalf of the taxpayer must be signed by a duly authorized officer of the common parent. See section 1.1502-77 of the regulations.

SECTION 7. EFFECTIVE DATE

This revenue procedure shall be effective for changes in annual accounting period where the short period ends on or after April 23, 1984.

SECTION 8. INQUIRIES

Inquiries in regard to this revenue procedure should refer to its number and be addressed to the Commissioner of Internal Revenue, Attention: CC:C:C:1, 1111 Constitution Avenue, N.W., Washington, D.C. 20224.