Rev. Rul. 54-273

Advice is requested whether a taxpayer who begins a business on a date other than the first day of a calendar month and adopts an accounting period of exactly 12 months from the date business was begun has established an annual accounting period within the meaning of section 41 of the Internal Revenue Code. Advice is also requested whether such taxpayer is required to obtain the approval of the Internal Revenue Service to change his accounting period from such 12-month period to a calendar year.

Section 41 of the Internal Revenue Code, relating to accounting periods and methods of accounting reads as follows:

GENERAL RULE. The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 48 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

Section 48(b) of the Internal Revenue Code defines a fiscal year as follows:

FISCAL YEAR.-`Fiscal year' means an accounting period of twelve months ending on the last day of any month other than December.

Under the circumstances here stated, the taxpayer has failed to establish an accounting period which may be recognized under the Internal Revenue Code. Under the provisions of section 41 of the Code, the taxpayer is required to make his return on the basis of a calendar year. Accordingly, the approval of the Commissioner is not required to enable the taxpayer to compute his net income on the basis of a calendar year.

Since such taxpayer has failed to establish a fiscal year within the meaning of the law, any return filed on the incorrect basis of exactly 12 months from the date business was begun should have been filed on the basis of a calendar year. Park-Chambers, Inc. v. Commissioner , 46 B.T.A. 144, affirmed 131 Fed.(2d) 65. The matter of filing corrected returns should be taken up with the District Director of Internal Revenue for the district in which such returns were filed.