Rev. Rul. 74-326

Advice has been requested whether, under the circumstances described below, the provisions of section 1.442-1(c) of the Income Tax Regulations are applicable to an affiliated group filing consolidated returns.

X is the parent of an affiliated group filing consolidated returns on a calendar year basis. Y, a subsidiary, joined the group in 1971 and changed its taxable year to conform to the same taxable year as that of the group as required by section 1.1502-76(a) of the regulations. In 1972, a consolidated return year, the affiliated group desired to change its accounting period pursuant to the provisions of section 1.442-1(c) of the regulations. None of the other members of the affiliated group had changed their accounting period within the preceding ten calendar years.

Section 1.442-1(c) of the regulations sets forth certain rules under which a corporation can change its accounting period without obtaining the prior consent of the Commissioner of Internal Revenue. One of the pertinent requirements of section 1.442-1(c)(2)(i) of the regulations is that a corporation has not changed its annual accounting period at any time within the ten calendar years ending with the calendar year which includes the beginning of the short period required to effect the change of annual accounting period.

Section 1.442-1(c) of the regulations requires, in effect, that each corporation of the affiliated group filing consolidated returns meet all of the conditions set forth therein. In the instant case, Y changed its annual accounting period within the ten calendar years ending with the calendar year 1972. Therefore, Y could not meet the specific condition of section 1.442-1(c)(2)(i) of the regulations.

Accordingly, since Y as a member of the affiliated group failed to meet all of the requirements of section 1.442-1(c) of the regulations, X as parent of the group for a consolidated return year will be required to file Form 1128 with the Commissioner of Internal Revenue, in accordance with section 1.442-1(b)(1) of the regulations, to secure the prior approval for a change of the annual accounting period.