IRS ISSUES NEW PROCEDURE FOR OBTAINING SPEEDY APPROVAL OF ACCOUNTING PERIOD CHANGE.

Rev. Proc. 92-13 ¹

CONTENTS

SEC. 1. PURPOSE

The purpose of this revenue procedure is to provide a procedure for certain corporations to obtain expeditious approval of a change of their annual accounting period. This revenue procedure modifies and supersedes Rev. Proc. 84-34, 1984-1 C.B. 508.

SEC. 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 its 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 its annual accounting periods the taxpayer must file an application on a Form 128 (Application to Adopt, Change or Retain a Tax Year) with the Commissioner of Internal Revenue, on or before the 15th day of the second calendar month following the close of the taxpayer's short taxable 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 rich the change will be effected.

03 Section 1.442-1(c)(1) of the regulations provides a special rule for certain corporations whereby 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 sections 1.442-1(c)(4) and (5), or subject to section 859 of the Internal Revenue Code.

04 Section 1.442-1(c)(2) of the regulations provides that a corporation may change its annual accounting period without the prior approval of the Commissioner if the following conditions are satisfied:

(1) the corporation has not changed its annual accounting period within the 10 calendar year period ending with the calendar year that includes the beginning of the short period required to effect the change;

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

(3) The taxable income of the corporation for the short period required to effect the change of annual accounting period is, if placed on an annual basis, 80 percent or more of the taxable income of the corporation or the taxable 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 or the taxable year immediately preceding the short period, must have the same special status for both the short period and the preceding taxable year; and

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

05 Section 1.443-1(b)(1)(i) of the regulations provides' that if a return is made for a short period resulting from a change of an annual accounting period, the taxable income for the short period shall be placed on an annual basis by multiplying the income by 12 and dividing the result by the number of months in the short period. Unless section 443(b)(2) of the Code and section 1.443-1(b)(2) apply, the tax for the short period shall be the same part of the tax computed on an annual basis as the lumber of months in the short period is of 12 months.

06 Section 1.852-3(e) of the regulations provides that the taxable income of a regulated investment company shall be computed without regard to section 443(b) of the Code. Thus, the taxable income for a period of less than 12 months shall not be placed on an annual basis even though such short taxable year results from a change of annual accounting period.

07 Section 1.857-2(a)(4) of the regulations provides that the taxable income of a real estate investment trust for a period of less than 12 months is not placed on an annual basis even though the short taxable year results from a change of annual accounting period.

08 Taxpayers not meeting the scope of this revenue procedure and receiving, under section 6081 of the Code, an extension of time to file a federal income tax return for the short period described in section 1.442-1(b) of the regulations, are not to construe the granting of an extension under section 6081 as an extension of time to file a Form 1128.

SEC. 3. CHANGES

01 Rev. Proc. 84-34 provides procedures whereby certain corporations can obtain expeditious approval of a change of their annual accounting period. This section highlights the changes and modifications to Rev. Proc. 84-34 made by this revenue procedure. A new section 3 has been added to this revenue procedure and sections 3, 4, 5, 6, 7, and 8 in Rev. Proc. 84-34 have been renumbered 4, 5, 6, 7, 8, and 9, respectively, in this revenue procedure.

02 Section 4.01(2) provides for a 6-year waiting period instead of the 10-year waiting period provided in Rev. Proc. 84-34.

03 Section 4.01(4) adds interest charge DISCs (Domestic International Sales Corporations) and FSCs (Foreign Sales Corporations) to the list of taxpayers that may not use this revenue procedure.

04 Section 4.01(6) adds personal service corporations to the list of taxpayers that may not use this revenue procedure.

05 Section 4.01(9) adds minority U.S. shareholders of controlled foreign corporations or foreign personal holding corporations to the list of taxpayers that may not use this revenue procedure.

06 Section 4.01(10) identifies certain exempt organizations that may qualify to use this revenue procedure.

07 Section 4.01(11) adds shareholders who have elected to treat a passive foreign investment company ("PFIC") as a qualified electing fund to the list of taxpayers that may not use this revenue procedure.

08 Section 4.01(12) adds PFICs, 10 percent or more of whose stock is owned, directly or indirectly, by U.S. persons who cave elected to treat the PFIC as a qualified electing fund to the list of taxpayers that may not use this revenue procedure.

09 Section 4.01(13) adds cooperative associations (within the meaning of section 1381(a) of the Code) with a loss in the short period required to effect a change of annual accounting period to the list of taxpayers that may not use this revenue procedure.

10 Section 4.02 has been redrafted to incorporate the provisions of Announcement No. 84-84, 1984-35 I.R.S. 8, concerning the use of this revenue procedure by consolidated groups

11 Section 5.02 contains the following changes:

(1) Sec. 5.02(2) clarifies the requirement that a return be filed for the short period.

(2) Sec. 5.02(4) clarifies that the annualization requirement for the short period does not apply to real estate investment trusts and regulated investment companies.

(3) Section 5.02(5) clarifies that the term "net operating loss" for an affiliated group filing a consolidated return ("consolidated groups') means a consolidated net operating loss.

(4) Section 5.02(6) is added to provide instructions for the apportionment of a shore period consolidated net operating loss among members of a consolidated group when a member subsequently leaves the group or the group discontinues filing a consolidated return.

(5) Section 502(7) updates the term "investment credit" to "general business credit."

12 Section 6.04 has been added to provide instructions for the treatment of any remaining short period net operating loss should a corporation cease to exist following a change of annual accounting period.

SEC. 4. SCOPE

01 This revenue procedure applies to a corporation that:

(1) cannot 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 last 6 calendar years (or within any of the calendar years the taxpayer has been in existence if less than 6 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) a beneficiary of a trust or an estate; or (c) a shareholder of an interest charge DISC or FSC, as of the end of the short period;

(4) is not an interest charge DISC or a FSC;

(5) is not an S corporation (as defined in section 1361 of the Code) and does not attempt to make an S corporation election effective for the taxable year immediately following the short period. See Rev. Proc. 87-32, 1987-2 C.B. 396, for procedures to follow in changing an annual accounting period for an S corporation;

(6) is not a personal service corporation (as defined in section 441(i) of the Code). Rev. Proc. 87-32 for procedures to follow in changing an annual accounting period for a personal service corporation;

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

(8) is not a foreign personal holding company (as defined in section 552 of the Code);

(9) is not a minority shareholder of a controlled foreign corporation or foreign personal holding corporation; (For this purpose a minority shareholder is a U.S. shareholder that is not a majority U. S. shareholder as defined in section 898 of the Code.)

(10) is not a tax exempt organization, other than an organization exempt from federal income tax under section 521, 526, 527, or 528 of the Code. 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 not a direct or indirect shareholder of a PFIC that is a qualified electing fund (within the meaning of section 1295 of the Code) with respect to the shareholder.

(12) is not 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 treat as a qualified electing fund; and

(13) is not a cooperative association (within the leaning of section 1381(a) of the Code) with a loss in the short period required to effect the change of annual accounting period.

02 A consolidated group may change the group's annual accounting period using the expeditious approval procedures provided in this revenue procedure under the authority of section 1.442-1(b) of the regulations only if every member of the group meets all the requirements and complies with all of the conditions of this revenue procedure. Thus, the group may change its accounting period under this revenue procedure only if no member of the group has changed its accounting period within the last 6 calendar years (or within any of the calendar bears the member has been in existence if less than 6 years). However, all members of the group will be considered to meet the requirement in the preceding sentence if the only changes in accounting period during the 6-calendar-year period were those necessary to comply with the common taxable bear requirement of section 1.1502-76(a)(1) as a result of the acquisition of one or more members.

03 Corporations which are unable to use the automatic provisions of this revenue procedure or section 1.442-1(c) of the regulations must secure prior approval from the Commissioner for a change in an accounting period pursuant to section 1.442-1(b)(1).

SEC. 5. APPLICATION

01 In accordance with sections 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 any corporation or consolidated group eligible under this revenue procedure to change its annual accounting period. Approval is granted beginning with the short period required to effect the change. A corporation (including the common parent of a consolidated group) must complete and file a current Form 1128 in the manner described in section 7 of this revenue procedure and otherwise comply with the provisions of this revenue procedure. A corporation (including the common parent of a consolidated group) must complete and file a current Form 1128 in the manner described in section 7 of this revenue procedure and otherwise comply with the provisions of this revenue procedure. The common parent corporation must clearly indicate that the Form 1128 is filed on behalf of the common parent corporation and all its subsidiaries, and the common parent corporation must answer all relevant questions on the Form 1128 for each member of the consolidated group.

02 Any corporation or consolidated group desiring to change its annual accounting period pursuant to this revenue procedure must comply with the following conditions:

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

(2) The corporation or consolidated group must file a federal income tax return for the short period by the due date of the return, including extensions, pursuant to section 1.443-1(a) of the regulations.

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

(4) The corporation's (or consolidated group's) taxable income for consolidated taxable income) for the short period must be annualized, except in the case of a real estate investment trust or regulated investment company, and the tax must be computed in accordance with the provisions of section 1.443(b) of the Code and section 1.443-1(b) of the regulations.

(5) Except as provided below, if the corporation (or consolidated group) has a net operating loss (or consolidated net operating loss) in the short period required to effect the change, the net operating loss may not be carried back and must be deducted ratably over a 6-year period beginning with the first taxable year after the short period. However, the short period net operating loss (or consolidated net operating loss) is carried back or carried over in accordance with section 172(b) of the Code if it is either, (a) $10,000 or less, or (b) results from a short period of 9 months or longer and is less than the net operating loss (or the consolidated net operating loss) for a full 12-month period beginning with the first day of the short period.

(6) If any portion of a short period consolidated net operating loss must be carried over to a separate return year (because a member leaves the consolidated group or the group discontinues filing a consolidated return), the remaining consolidated net operating loss carryover is apportioned among members in accordance with section 1.1502-79(a)(3) of the regulations. Section 1.1502-79(a)(3) provides that the portion of a consolidated net operating loss attributable to a member of a group is an amount equal to the short period consolidated net operating loss multiplied by a fraction, the numerator of which is the short period separate net operating loss of the member, and the denominator of which s the sum of the short period separate net operating losses of all members of the group. The treatment prescribed in section 5.02(5) above shall continue to apply to the apportioned loss.

(7) If there is an unused general business credit or any other unused credit for the short period, the corporation must carry that unused credit forward. An unused credit from the short period may not be carried back.

SEC. 6. 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 the terms, conditions, and adjustments are 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 examined to have initiated the change in annual accounting period without the consent of the Commissioner.

03 No member of a consolidated group may change its annual accounting period independent of the group until the consolidated group has received the Commissioner's permission, pursuant to the provisions of section 1.1502-75(c) of the regulations, to discontinue filing a consolidated return.

04 If the taxpayer ceases to exist, any remaining short period net operating loss must be taken into account in the taxpayer's final return. For purposes of this condition, the taxpayer is not considered to have ceased to exist if the taxpayer's assets are acquired in a transaction to which section 381 of the Code applies.

SEC. 7. MANNER OF EFFECTING THE CHANGE

01 Any corporation desiring to change its 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, Attention: ENTITY CONTROL, where the corporation files its federal income tax return.

02 A Form 1128 filed pursuant to this revenue procedure will be considered timely filed for purposes of section 1.442-1(b)(1) of the regulations if and only if, it is filed on or before the time (including extensions) for filing the return for the short period required by such change. The only basis for denial of the change of annual accounting period under this revenue procedure will be: 1) an untimely filed Form 1128; or 2) failure of the corporation to meet the scope, terms, or conditions of this revenue procedure. If the change is denied, the Service Center will return the Form 1128 to the taxpayer, with an explanation for the denial. No copies of Form 1128 are equipped to be sent to the National Office.

03 In order to assist in the processing of the change of annual accounting period, 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. 92-13."

04 The signature of the person requesting the change of annual accounting period must appear in the space provided for it on the Form 1128. An officer must sign on behalf of a corporation. If the taxpayer is a member of a consolidated group, the current Form 1128 must be signed by a duly authorized officer of the common parent. See section 1.1502-77 of the regulations. 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) should be attached to the application. A taxpayer's representative without a power of attorney to represent the taxpayer will not be given any information about the application. See section 6013 of the Code. No user fee is required for a request filed under this revenue procedure.

SEC. 8. EFFECTIVE DATE

This revenue procedure is generally effective for all changes in annual accounting periods for which the short period ends on or after January 1, 1992. However, if the time period set forth in section 7.02 of this revenue procedure for filing a Form 1128 with respect to a short period has not yet expired, a corporation meeting the scope of this revenue procedure may elect early application of the procedure by providing the notification set forth in section 7.03 on the top of page 1 of Form 1128 and by satisfying the other procedural requirements within section 7.

SEC. 9. INQUIRIES

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

SEC. 10. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 84-34 is modified and, as modified, is supreseded. Rev. Rul. 74-326, 1974-2, C.B. 142, is distinguished from the treatment provided in section 4.02 of this revenue procedure. Rev. Rul. 74-326 holds that a consolidated group may not make an automatic change of annual accounting period under section 1.442-1(c) of the regulations without prior approval of the Commissioner if any member of the group changed its annual accounting period within the past 10 calendar years pursuant to section 1.1502-76(a).

DRAFTING INFORMATION

The principal author of this revenue procedure is Joseph A. Donnelly of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Tajuana Nelson Hyde (282) 566-4120 (not a toll-free call).

¹ As corrected by Rev. Proc. 92-13A, page 668, this Bulletin.