Rev Proc 2006-45

to comply with the final regulations for
either: (1) the taxpayer’s last taxable year
ending before October 18, 2006, if the taxpayer timely files (including extensions)
its Federal income tax return after October
18, 2006, for that last taxable year; or (2)
the taxpayer’s first taxable year ending on
or after October 18, 2006.
.02 This revenue procedure does not apply to:
(1) A change in computing depreciation resulting from a taxpayer
claiming the rehabilitation credit in accordance with § 1.168(k)–1(g)(6) or
§ 1.1400L(b)–1(g)(6);
(2) A change in computing depreciation that is not a change in method of accounting under § 1.446–1T(e)(2)(ii)(d)(3).
However if,
in accordance with
§ 1.1400L(b)–1(g)(4)(iii), a taxpayer
is changing its computation of depreciation for qualified New York Liberty
Zone property because of the amendment
made to § 1.1400L(b)–1T(c)(2)(ii) by
the final regulations under § 1400L(b)
and the taxpayer made an election under § 1.168(k)–1T(e)(1) for the class
of property that included such qualified New York Liberty Zone property,
§ 1.1400L(b)–1(g)(4)(iii) expressly provides that this change in computing depreciation is a change in method of accounting
and, thus, § 1.446–1T(e)(2)(ii)(d)(3)(iii)
does not apply to such change in computing depreciation.
(3) A change in computing depreciation
that is due to a posting error, mathematical
error, or a change in underlying facts;

(4) A change in computing depreciation for depreciable property that is placed
in service by a taxpayer in a taxable year
ending before December 30, 2003, that is
a capital asset under the taxpayer’s present
and proposed methods of accountings, and
for which the taxpayer wants to effect
the change in computing depreciation to
comply with the final regulations by filing
amended Federal tax returns in accordance
with Notice CC–2004–007 (January 28,
2004);
(5) A change in the treatment of property from a non-capital asset (for example,
inventory, materials and supplies) to a capital, depreciable asset (or vice versa); or
(6) A change from expensing the cost
of depreciable property to capitalizing and
depreciating that cost (or vice versa).
SECTION 4. APPLICATION
.01 A taxpayer within the scope of this
revenue procedure is, in accordance with
section 6.01 of Rev. Proc. 2002–9, granted
the consent of the Commissioner to change
to a method of accounting within the scope
of this revenue procedure to comply with
the final regulations provided the taxpayer
follows the automatic change in method
of accounting procedures in Rev. Proc.
2002–9 (or its successor) with the following modifications:
(1) The scope limitations in section 4.02
of Rev. Proc. 2002–9 do not apply for the
taxpayer’s first taxable year ending on or
after October 18, 2006, or, if applicable,
for the taxpayer’s last taxable year ending

before October 18, 2006, if the taxpayer
timely files its Federal income tax return
after October 18, 2006, for that last taxable
year; and
(2) For purposes of section 6.02(4)(a)
of Rev. Proc. 2002–9, the taxpayer must
include on line 1a of the Form 3115 the
designated automatic accounting method
change number 105.
.02 A change in method of accounting
within the scope of this revenue procedure
results in a § 481(a) adjustment.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–9 is modified and amplified to include the automatic change in
method of accounting provided in section
4 of this revenue procedure in section 2 of
the APPENDIX of Rev. Proc. 2002–9.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective October 18, 2006.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Douglas Kim of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). For further information regarding this revenue procedure,
contact Douglas Kim at (202) 622–3110
(not a toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 441, 442, 898, 1502; 1.441–1, 1.442–1, 1.1502–76.)

Rev. Proc. 2006–45
TABLE OF CONTENTS
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853
SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853

.01 Taxable Year Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Annual accounting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Required taxable year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Change in Taxable Year.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Annualization of short period return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) No retroactive change in annual accounting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Approval of a Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006–45 I.R.B.

851

853
853
853
853
853
853
853
853
853

November 6, 2006

SECTION 3. SIGNIFICANT CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 853
SECTION 4. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854

.01 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Inapplicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Prior change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Interest in a pass-through entity or a CFC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Shareholder of certain FSCs or IC-DISCs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) FSC and IC-DISC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) S or terminated S corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Electing S corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) PSC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) CFC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) Tax-exempt organization.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10) Possessions corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11) Cooperative association. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12) Corporation with a required taxable year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13) Corporation that exits a consolidated group.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14) Certain members of a consolidated group.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Nonautomatic Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

854
854
854
854
855
855
855
855
855
855
855
855
855
856
856
856
856
856

SECTION 5. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 856

.01 Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Pass-through Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Required Taxable Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Natural Business Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) 25-percent gross receipts test.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Exception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Special rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 First Effective Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Short Period.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

856
856
856
856
856
856
856
857
857

SECTION 6. TERMS AND CONDITIONS OF CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857

.01 In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Record Keeping/Book Conformity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Certain short periods exempt from financial statement conformity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Foreign law books and records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 First Effective Year Tax Return.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) When to file. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Annualization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.04 Subsequent Year Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.05 52–53-week Taxable Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06 Creation of Net Operating Loss or Capital Loss.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.07 Creation of General Business Credits.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08 Consolidated Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09 Concurrent Change for Related Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10 CFCs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

857
857
857
857
857
857
857
857
857
857
857
857
857
857
858

SECTION 7. GENERAL APPLICATION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858

.01 Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Filing Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Where to file. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) When to file. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Label.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Signature requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) No user fee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Additional information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

November 6, 2006

852

858
858
858
858
858
858
858
858

2006–45 I.R.B.

(7) Consolidated application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
SECTION 8. REVIEW OF APPLICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859

.01 Service Center Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
.02 Review of Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
SECTION 9. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
SECTION 10. EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
SECTION 11. PAPERWORK REDUCTION ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859
DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 859

SECTION 1. PURPOSE
This revenue procedure provides the
exclusive procedures for a corporation
(as defined in section 5.01 of this revenue procedure) within its scope to obtain
automatic approval to change its annual
accounting period under § 442 of the Internal Revenue Code and § 1.442–1(b) of
the Income Tax Regulations. This revenue
procedure clarifies, modifies, amplifies,
and supersedes Rev. Proc. 2002–37,
2002–1 C.B. 1030. A corporation complying with all the applicable provisions
of this revenue procedure will be deemed
to have established a business purpose
and obtained the approval of the Commissioner of Internal Revenue to change its
annual accounting period under § 442 and
the regulations thereunder.
SECTION 2. BACKGROUND
.01 Taxable Year Defined.
(1) In general. Section 441(b) and
§ 1.441–1(b)(1) provide that the term
“taxable year” generally means the taxpayer’s annual accounting period, if it is
a calendar or fiscal year, or, if applicable,
the taxpayer’s required taxable year.
(2) Annual accounting period. Section 441(c) and § 1.441–1(b)(3) provide
that the term “annual accounting period”
means the annual period (calendar year
or fiscal year) on the basis of which the
taxpayer regularly computes its income in
keeping its books.
(3) Required taxable year. Section
1.441–1(b)(2) provides that certain taxpayers must use the particular taxable year
that is required under the Code and the regulations thereunder. See § 1.441–1(b)(2)
for examples of taxpayers, including certain corporations, with required taxable
years.

2006–45 I.R.B.

.02 Change in Taxable Year.
(1) In general. Section 1.442–1(a)(1)
generally provides that a taxpayer that
wants to change its annual accounting
period and use a new taxable year must
obtain the approval of the Commissioner.
(2) Annualization of short peSection 443(b) and
riod return.
§ 1.443–1(b)(1)(i) generally provide 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 must 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
§ 443(b)(2) and § 1.443–1(b)(2) apply, the
tax for the short period generally is the
same part of the tax computed on an annual basis as the number of months in the
short period is of 12 months. But see, for
example, §§ 1.852–3(e), 1.857–2(a)(4),
and 1.1502–76 for exceptions to this
general rule for a regulated investment
company (RIC), a real estate investment
trust (REIT), and a subsidiary corporation
ceasing to be a member of a consolidated
group, respectively.
(3) No retroactive change in annual accounting period. Unless specifically authorized by the Commissioner, a taxpayer
may not request, or otherwise make, a
retroactive change in annual accounting
period, regardless of whether the change is
to a required taxable year.
.03 Approval of a Change. Section
1.442–1(b) provides, in part, that in order to secure the approval of the Commissioner to change an annual accounting period, a taxpayer must file an application,
generally on Form 1128, “Application To
Adopt, Change, or Retain a Tax Year,”
with the Commissioner within such time
and in such manner as is provided in ad-

853

ministrative procedures published by the
Commissioner. In general, a change in annual accounting period will be approved
if the taxpayer establishes a business purpose for the requested annual accounting
period and agrees to the Commissioner’s
prescribed terms, conditions, and adjustments for effecting the change.
SECTION 3. SIGNIFICANT CHANGES
Significant changes to Rev.
Proc.
2002–37 made by this revenue procedure
include:
.01 Sections 4.01(2), 4.01(3), and
4.01(4) of Rev. Proc. 2002–37 are removed from the applicability section and
are reinserted, where appropriate, in the
relevant inapplicability subsections under
section 4.02 of this revenue procedure.
.02 Section 4.02(2) of this revenue procedure removes section 4.02(2)(b) of Rev.
Proc. 2002–37 because the entities formerly described by section 4.02(2)(b) of
Rev. Proc. 2002–37 are included in section 4.02(2)(a) of this revenue procedure.
.03 Section 4.02(2)(e) of this revenue
procedure provides that an interest in a
pass-through entity that does not have a required taxable year is disregarded solely
for purposes of section 4.02(2). Thus, having an interest in a pass-through entity that
does not have a required taxable year does
not make a corporation ineligible for use
of this revenue procedure.
.04 Section 4.02(5) of this revenue
procedure excludes from the scope an S
or terminated S corporation. See Rev.
Proc. 2006–46, 2006–45 I.R.B. 859, for
procedures to follow for certain automatic
changes in the annual accounting period
of an S corporation.
.05 Section 4.02(8) of this revenue procedure excludes from the scope certain
controlled foreign corporations (CFCs).

November 6, 2006

.06 Section 4.02(13) of this revenue
procedure excludes from the scope a corporation that exits a consolidated group in
its first effective year.
.07 Section 4.02(14) of this revenue
procedure excludes from the scope certain
changes to (or from) a 52–53 week taxable
year by a member of a consolidated group.
.08 Section 6.02 of this revenue procedure provides that only certain short
periods are exempt from the financial
statement conformity requirement and
incorporates the clarification in Notice
2002–72, 2002–2 C.B. 843, of the record
keeping/book conformity term and condition with regard to CFCs.
.09 Section 6.03(1) of this revenue procedure provides that certain CFCs are not
required to file a first effective year tax return.
.10 Sections 6.05 (changes in natural
business year for an electing S corporation) and 6.06 (changes in ownership
taxable year for an electing S corporation) of Rev. Proc. 2002–37 are not included in this revenue procedure because
this revenue procedure does not apply
to S corporations. The removal of these
sections from the terms and conditions of
this revenue procedure is not intended to
imply that a corporation that elects to be
an S corporation is not required to conform to the requirements for accounting
periods for S corporations. See § 1378 and
§ 1.1378–1(a) for the permitted years of an
S Corporation and see Rev. Proc. 2006–46
for procedures to follow for certain automatic changes in the annual accounting
period of an S corporation.
.11 Section 6.06 of this revenue procedure incorporates the modified carryback
term and condition of section 4.01 of Rev.
Proc. 2003–34, 2003–1 C.B. 856.
.12 Section 6.08 of this revenue procedure clarifies that in the case of a change
in annual accounting period by the common parent of a consolidated group, the
consolidated return rules will apply (e.g.,
§ 1.1502–21) unless this revenue procedure specifically provides otherwise.
.13 Section 6.09 of this revenue procedure incorporates the clarification in
Notice 2002–72, that certain entities with
required taxable years that must concurrently change their annual accounting
period as a term and condition for the
approval of a related taxpayer’s change
of annual accounting period must do so

November 6, 2006

under the applicable automatic approval
procedures notwithstanding any limitations in those procedures to the contrary
or any conflicting testing date provisions.
.14 Section 6.10 of this revenue procedure provides that a CFC that revokes its
one month deferral election under § 898 is
not eligible to make another change in taxable year for a period of 48 months following the first day of the first effective year.
.15 Sections 7.02(1)(b), 7.02(2)(b), and
7.02(4)(b) of this revenue procedure provide the filing requirements for certain
CFCs and noncontrolled section 902 corporations.
.16 Section 7.02(2) of this revenue
procedure provides that the Form 1128 or
Form 5471, Information Return of U.S.
Persons With Respect To Certain Foreign
Corporations, must be filed no earlier
than the day following the end of the first
effective year.
.17 Section 7.02(7) of this revenue procedure provides that, for purposes of a
change in annual accounting period, a consolidated group consists of the parent and
any subsidiary that is a member of the
group on the last day of the short period.
SECTION 4. SCOPE
.01 Applicability. Except as provided
in section 4.02, this revenue procedure is
the exclusive procedure for a corporation
within its scope to secure the Commissioner’s approval and applies to a corporation requesting approval to change its annual accounting period, including a corporation that wants to change to (or from) a
52–53-week taxable year.
.02 Inapplicability. This revenue procedure does not apply to the following corporations:
(1) Prior change. A corporation that
has changed its annual accounting period
within the most recent 48-month period
ending with the last month of the requested
taxable year, unless:
(a) the prior change was made in order
to comply with the common taxable year
requirement of either § 1.1502–75(d)(3)(v)
or 1.1502–76(a)(1) (see § 1.442–1(c));
(b) the prior change was made by
a corporation that either was acquired
within the preceding 12 months by a new
majority shareholder using a different
taxable year, or whose majority share-

854

holder changed its taxable year within the
preceding 12 months, if that corporation
does not file consolidated income tax returns with its majority shareholder and
seeks to change to the taxable year of that
shareholder in order to file consolidated
financial statements. For purposes of this
section 4.02(1)(b), “majority shareholder”
means ownership that satisfies the test of
§ 1504(a)(2), substituting “more than 50
percent” for “at least 80 percent;”
(c) except in the case of a CFC, the prior
change was from a 52–53-week taxable
year that references a particular month to a
non-52–53-week taxable year that ends on
the last day of that month, and vice versa;
(d) the prior change was to a required
taxable year (as defined in section 5.03 of
this revenue procedure) or was a concurrent change required by either this revenue
procedure or Rev. Proc. 2002–39 (or any
successor);
(e) the corporation wants to change
from a 52–53-week taxable year to a
non-52–53-week taxable year that ends
with reference to the same month, and
vice versa; or
(f) the corporation is a CFC that wants
to revoke its one month deferral election
under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder
year (as defined in § 898(c)(1)(C)).
(2) Interest in a pass-through entity or
a CFC. A corporation that has an interest in a pass-through entity (as defined in
section 5.02 of this revenue procedure) or
a CFC as of the end of the first effective
year (as defined in section 5.05 of this revenue procedure). However, an interest in
a pass-through entity or CFC will be disregarded for this purpose if any of the following conditions are met:
(a) the pass-through entity or CFC
would be required under the Code or regulations to change its taxable year to the
new taxable year of the corporation (or, in
the case of a CFC, to a taxable year that
is described in section 4.02(8)(b)). See
section 6.09 of this revenue procedure for
a special term and condition related to this
exception;
(b) the new taxable year of the corporation would result in no change in or less
deferral (as described in § 1.706–1(b)(3))
from the pass-through entity or CFC than
the present taxable year of the corporation.
If the entity is a partnership or a CFC, the

2006–45 I.R.B.

corporation should compare the existing
deferral period (between the pass-through
entity’s and the corporation’s current taxable years) with the new deferral period
(between the new required taxable year of
the pass-through entity or CFC and the corporation’s new taxable year). See section
4.04 of this revenue procedure for an example of this rule;
(c) the pass-through entity or CFC in
which the corporation has an interest has
been in existence for at least 3 taxable
years and the interest is de minimis. For
this purpose, an interest is de minimis if:
(i) for each of the prior 3 taxable years
of the corporation, the amount of income
(including ordinary income or loss, capital gains or losses, rents, royalties, interest, dividends and deduction equivalents
of credits) from de minimis interest in a
pass-through entity or CFC 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 each of those
taxable years, and (B) $500,000; and
(ii) the amount of income from all de
minimis interest in pass-through entities
and CFCs in the aggregate is less than or
equal to the amounts described in (A) and
(B) of (c)(i) above. See section 4.04 of this
revenue procedure for an example of this
rule;
(d) the corporation wants to change
from a 52–53-week taxable year to a
non-52–53-week taxable year that ends
with reference to the same month, and
vice versa;
(e) the pass-through entity or CFC does
not have a required year;
(f) the corporation wants to change to a
natural business year (as defined in section
5.04 of this revenue procedure) that satisfies the 25-percent gross receipts test described in that section; or
(g) the corporation is a CFC that wants
to revoke its one month deferral election
under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder
year (as defined in § 898(c)(1)(C)).
(3) Shareholder of certain FSCs or
IC-DISCs. A corporation that is a shareholder of a foreign sales corporation (FSC)
or interest charge domestic international
sales corporation (IC-DISC), as of the end
of the short period (as defined in section
5.06 of this revenue procedure). However,

2006–45 I.R.B.

an interest in a FSC or IC-DISC is disregarded if any of the following conditions
is met:
(a) 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
§ 441(h)) would be required to change its
taxable year pursuant to §§ 1.921–1T(b)(4)
and (6) to the new taxable year of the corporation. See section 6.09 of this revenue
procedure for a special term and condition
related to this exception;
(b) the new taxable year of the corporation would result in no change in or less
deferral of income (as determined under
the principles of § 1.706–1(a)(3)) from the
FSC or IC-DISC than the present taxable
year of the corporation;
(c) the corporation wants to change
from a 52–53-week taxable year to a
non-52–53-week taxable year that ends
with reference to the same month, and
vice versa;
(d) the corporation wants to change to
a natural business year that satisfies the
25-percent gross receipts test described in
section 5.04 of this revenue procedure; or
(e) the corporation is a CFC that wants
to revoke its one month deferral election
under § 898(c)(1)(B) and change its taxable year to the majority U.S. shareholder
year (as defined in § 898(c)(1)(C));
(4) FSC and IC-DISC. A corporation that is a FSC or an IC-DISC. See
§ 1.921–1T(b)(4) for rules regarding automatic changes of the annual accounting
period of a FSC or IC-DISC to the taxable
year of its principal shareholder;
(5) S or terminated S corporation. A
corporation that either is an S corporation
(as defined in § 1361) or a corporation that
is requesting a change in annual accounting period that is within an S termination
year (as defined in § 1362(e)(4)). See Rev.
Proc. 2006–46 for procedures to follow for
certain automatic changes in the annual accounting period of an S corporation;
(6) Electing S corporation. A corporation that attempts to make an S corporation election for the taxable year immediately following the short period, unless the change is to a permitted taxable
year, or from a 52–53-week taxable year to
a non-52–53-week taxable year that ends
with reference to the same month, and vice
versa;

855

(7) PSC. A corporation that is a personal service corporation (PSC) (as defined in § 441(i)). See Rev. Proc. 2006–46
for procedures to follow for certain automatic changes in the annual accounting period of a PSC;
(8) CFC. A corporation that is a controlled foreign corporation as defined in
§ 957, including a CFC that also is a passive foreign investment company (PFIC)
as defined in § 1297(a), unless:
(a) the CFC does not have a required
taxable year under § 898;
(b) the CFC is changing to its required
taxable year under § 898, to a 52–53-week
taxable year that references that year, or,
if the CFC has a majority U.S. shareholder year (as defined in § 898(c)(3)),
to a one-month deferral year described in
§ 898(c)(2) or to a 52–53-week taxable
year that references such one-month deferral year; or
(c) with respect to the CFC’s taxable
years beginning after July 10, 1989, no
U.S. shareholder has been required to include in gross income an amount described
in § 951(a) (subpart F inclusion).
(9) Tax-exempt organization. A corporation that is a tax-exempt organization,
other than an organization exempt from
federal income tax under § 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 of a
tax-exempt organization that is not within
the scope of this revenue procedure;
(10) Possessions corporation. A corporation that has in effect an election under
§ 936;
(11) Cooperative association. A corporation that is a cooperative association
(within the meaning of § 1381(a)) with a
loss in the short period required to effect
the change of annual accounting period,
unless it is changing from a 52–53-week
taxable year to a non-52–53-week taxable
year that ends with reference to the same
month, and vice versa, or 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; or

November 6, 2006

(12) Corporation with a required taxable year. A corporation that has a required taxable year (e.g., a REIT, or a
Qualified Settlement Fund or Designated
Settlement Fund as defined in § 1.468B),
unless the corporation is changing to their
required taxable year.
(13) Corporation that exits a consolidated group. A corporation that ceases to
be a member of a consolidated group during the consolidated group’s first effective
year.
(14) Certain members of a consolidated
group. A corporation that is a member of
a consolidated group requesting to change
to (or from) a 52–53-week taxable year unless the requested taxable year is identical to the taxable year of the consolidated
group.
.03 Nonautomatic Changes. A corporation that is unable to obtain automatic
approval for a change in accounting period under this or any other applicable
revenue procedure, or under a regulation,
must secure prior approval from the Commissioner for a change in an accounting
period pursuant to § 442 and the regulations thereunder. See Rev. Proc. 2002–39
(or any successor).
.04 Examples.
(1) Example 1. (a) Corporations V, W, X, Y, and Z
hold equal 20 percent interests in the capital and profits of partnership ABC. V and W are calendar year
taxpayers. X and Y have taxable years ending June
30, and Z has a taxable year ending September 30.
ABC does not have a business purpose for a particular
taxable year, and thus, pursuant to § 1.706–1, ABC is
required to use a taxable year ending June 30 because
that taxable year results in the least aggregate deferral
of income to its partners. Z currently has a 3-month
deferral period (the number of months from the end
of ABC’s taxable year to the end of Z’s taxable year).
Z wants to change its taxable year to a calendar year.
(b) If Z changes its taxable year to a calendar year,
ABC would be required to change its taxable year under § 706 to its majority interest taxable year, which
would be the calendar year. As a result of Z’s new
taxable year and ABC’s new taxable year, Z’s deferral period would be eliminated. Because Z’s new taxable year would reduce Z’s deferral, Z may disregard
its interest in ABC under section 4.02(2)(b) of this
revenue procedure.
(2) Example 2. (a) Corporation X, a calendar
year taxpayer, wants to change its taxable year to a
year ending June 30. X has interests in five partnerships, ABC, DEF, GHI, JKL, and MNO. All of
the partnerships have been in existence for over
three taxable years. X’s interests in each of ABC
and DEF is greater than 50 percent. X’s interest
in GHI, JKL, and MNO is 15 percent, 10 percent,
and 5 percent, respectively. GHI uses the majority
interest taxable year ending May 31 and JKL and

November 6, 2006

MNO each use their respective majority interest
taxable year ending December 31. X’s distributive
share of income/(loss) from JKL for the prior three
taxable years is $300,000, $(100,000), and $200,000,
respectively, and from MNO is $300,000, $200,000,
and $100,000, respectively. X’s gross receipts for
each of those same taxable years was $15,000,000.
(b) X’s interests in its pass-through entities will
be disregarded for purposes of section 4.02(2) of this
revenue procedure only if each pass-through entity
satisfies one of the exceptions enumerated under section 4.02(2) of this revenue procedure. In the instant
case, X’s interests in ABC and DEF each meet the
exception in section 4.02(2)(a) because X is the majority interest partner in each partnership. X’s interest
in GHI meets the exception in section 4.02(2)(b) because X’s new taxable year would result in less deferral than its old taxable year (the deferral between May
31 and June 30 of 1 month as compared to the deferral
between May 31 and December 31 of 7 months). Because X is not the majority interest partner in JKL and
MNO and because its new taxable year would not result in less deferral from these partnerships, X’s interests in JKL and MNO may be disregarded only if they
satisfy the de minimis exception in section 4.02(2)(c).
Although the income from JKL and MNO for each of
the prior three taxable years is less than 5 percent of
X’s gross receipts and $500,000, the income for year
1 from JKL and MNO, in the aggregate ($300,000
and $300,000), exceeds the $500,000 amount specified in section 4.02(2)(c)(ii). Consequently, JKL and
MNO fail to satisfy the de minimis exception in section 4.02(2)(c). Because X’s interests in all of its
pass-through entities will not be disregarded, X is not
within the scope of this revenue procedure.

SECTION 5. DEFINITIONS
The following definitions apply solely
for the purpose of this revenue procedure:
.01 Corporation. The term “corporation” includes associations, joint-stock
companies, and insurance companies, as
provided in § 7701(a)(3) and the regulations thereunder, and includes each
member of a consolidated group that is a
member of the group on the last day of the
first effective year.
.02 Pass-through Entity. The term
“pass-through entity” means a partnership
(as defined in § 7701(a)(2) and the regulations thereunder); a trust (as defined
in § 301.7701–4); an estate; a common
trust fund (as defined in § 584); a PFIC
that the corporation has elected to treat
as a qualified electing fund (as defined
in § 1295); and a closely-held REIT (as
defined in § 6655(e)(5)(B)), but only to
the extent the corporation is described in
§ 6655(e)(5)(A).
.03 Required Taxable Year. The “required taxable year” is the particular
taxable year that certain taxpayers are re-

856

quired to use under the Code and the regulations thereunder. See § 1.441–1(b)(2)
for examples of taxpayers, including certain corporations, with required taxable
years.
.04 Natural Business Year. A “natural
business year” is a year for which a corporation satisfies the following “25-percent
gross receipts test”:
(1) 25-percent gross receipts test. Except as provided in (2) below, the 25-percent gross receipts test is satisfied if each
of the results described in (a) and (b) below equals or exceeds 25-percent:
(a) Gross receipts from sales and services for the most recent 12-month period
that ends with the last month of the requested annual accounting period are totaled and then divided into the amount of
gross receipts from sales and services for
the last 2 months of this 12-month period.
(b) The same computation as in (1)(a)
above is made for the two preceding
12-month periods ending with the last
month of the requested annual accounting
period.
(2) Exception. The corporation must
determine whether any annual accounting
period other than the requested annual accounting period also meets the 25-percent
gross receipts test described in (1). If one
or more other annual accounting periods
produce higher averages of the three percentages (rounded to 1/100 of a percent)
described in (1) than the requested annual
accounting period, then the requested annual accounting period will not qualify as
the corporation’s natural business year.
(3) Special rules.
(a) To apply the 25-percent gross receipts test for any particular year, the corporation must compute its gross receipts
under the method of accounting used to
prepare its federal income tax return for
such taxable year.
(b) Regardless of the corporation’s
method of accounting, the corporation’s share of taxable income from a
pass-through entity generally must be
reported as gross receipts from sales and
services in the month that the pass-through
entity’s taxable year ends.
(c) If a corporation has a predecessor
organization and is continuing the same
business as its predecessor, the corporation
must use the gross receipts from sales and
services of its predecessor for purposes of

2006–45 I.R.B.

computing the 25-percent gross receipts
test.
(d) If the corporation (including any
predecessor organization) does not have
a 47-month period of gross receipts (36month period for requested taxable year
plus additional 11-month period for comparing requested taxable year with other
potential taxable years), then it cannot establish a natural business year under this
revenue procedure.
(e) If the requested taxable year is a
52–53-week taxable year, the calendar
month ending nearest to the last day of the
52–53-week taxable year is treated as the
last month of the requested taxable year
for purposes of computing the 25-percent
gross receipts test.
.05 First Effective Year. The “first effective year” is the first taxable year for
which a change in annual accounting period is effective. The first effective year
generally is the short period required to
effect the change. In the case of a short
period of 6 days or less, the first effective
year is the taxable year that includes such
short period under § 1.441–2(b)(2)(ii).
The first effective year also is the first taxable year for complying with all the terms
and conditions set forth in this revenue
procedure necessary to effect the change
in annual accounting period.
.06 Short Period. In the case of a change
in annual accounting period, a corporation’s “short period” is the period beginning with the day following the close of the
old taxable year and ending with the day
preceding the first day of the new taxable
year.
SECTION 6. TERMS AND
CONDITIONS OF CHANGE
.01 In General. A change in annual accounting period filed under this revenue
procedure must be made pursuant to the
terms and conditions provided in this revenue procedure.
.02 Record Keeping/Book Conformity.
(1) In general. The corporation must
compute its income and keep its books
and records (including financial statements and reports to creditors) on the
basis of the requested taxable year. The
books and records of the corporation must
be closed as of the last day of the first
effective year and the corporation must

2006–45 I.R.B.

conform the accounting period used for
financial statement purposes and reports
to creditors concurrently.
(2) Certain short periods exempt from
financial statement conformity. If the corporation is not required to issue financial
statements for the short period required to
effect the change, the corporation will be
deemed to have met the financial statement conformity requirement for the first
effective year provided the corporation’s
accounting period used for financial statement purposes already conforms to the requested taxable year or the corporation
makes the change in accounting period
used for financial statement purposes and
reports to creditors concurrently.
(3) Foreign law books and records. The
terms and conditions in section 6.02(1) of
this revenue procedure do not apply to
require a corporation to close and conform books and records that are required
to be maintained for foreign law purposes
(e.g., foreign tax reporting purposes) on
the basis of a different taxable year than
the requested taxable year. In addition,
the terms and conditions in section 6.02(1)
of this revenue procedure do not apply to
require a noncontrolled section 902 corporation to close and conform any books
and records that are maintained for foreign
law purposes, regardless of whether foreign law requires such books and records
to be maintained on the basis of a different taxable year than the requested taxable
year.
.03 First Effective Year Tax Return.
(1) When to file. The corporation generally must file a federal income tax return
for the first effective year by the due date of
that return, including extensions pursuant
to § 1.443–1(a). A CFC or a noncontrolled
section 902 corporation that is not required
to file Form 1120F (because it is not engaged in United States trade or business)
need not file a first effective year tax return (or have its U.S. shareholder file such
a return on its behalf).
(2) Annualization. The corporation’s
taxable income for the short period must
be annualized and the tax must be computed in accordance with the provisions of
§ 443(b) and § 1.443–1(b). However, for
changes to (or from) a 52–53-week taxable year referencing the same month as
the current (or requested) taxable year, see
special rules in § 1.441–2.

857

.04 Subsequent Year Tax Returns. Returns for subsequent taxable years generally 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 requested taxable
year, unless the corporation secures the approval of the Commissioner to change that
taxable year.
.05 52–53-week Taxable Years. If applicable, the corporation must comply with
§ 1.441–2(e) (relating to the timing of taking items into account in those cases where
the taxable year of a pass-through entity
ends with reference to the same calendar
month as one or more of its owners).
.06 Creation of Net Operating Loss or
Capital Loss. If the corporation generates
a net operating loss (NOL) or capital loss
(CL) in the short period required to effect
a change in annual accounting period, the
corporation may not carry the NOL or CL
back, but must carry it over in accordance
with the provisions of §§ 172 and 1212, respectively, beginning with the first taxable
year after the short period. However, except as otherwise provided in the Code or
regulations, the short period NOL or CL is
carried back or carried over in accordance
with § 172 or 1212, respectively, if it is either: (a) $50,000 or less, or (b) less than the
NOL or CL, respectively, generated for the
full 12-month period beginning with the
first day of the short period. The corporation must wait until this 12-month period
has expired to determine whether it qualifies for the exception in (b) above.
.07 Creation of General Business Credits. If there is an unused general business
credit or any other unused credit generated
in the short period, the corporation must
carry that unused credit forward. An unused credit from the short period may not
be carried back.
.08 Consolidated Groups. In the case
of a change in annual accounting period
by the common parent of a consolidated
group, the consolidated return rules will
apply (e.g., § 1.1502–21) unless this revenue procedure specifically provides otherwise. In addition, every member of the
consolidated group must meet all the requirements and meet and comply with all
the terms and conditions of this revenue
procedure.
.09 Concurrent Change for Related Entities. If a corporation’s interest in a passthrough entity, FSC, or IC-DISC (related

November 6, 2006

entity) is disregarded pursuant to section
4.02(2)(a) or 4.02(3)(a) of this revenue
procedure because the related entity is required to change its taxable year to the corporation’s new taxable year (or, in the case
of a CFC, because it does not have a required year under § 898), the related entity must change its taxable year concurrently with the corporation’s change in taxable year, either under this revenue procedure, Rev. Proc. 2006–46, or Rev. Proc.
2002–39 (or any successor), whichever is
applicable. If the related entity that is required to change is a corporation, such as a
CFC, it is deemed to be within section 4.01
of this revenue procedure and if the related
entity is a pass-through entity, such as a
partnership, it is deemed to be within section 4.01(1) of Rev. Proc. 2006–46. The
preceding sentence applies notwithstanding any conflicting testing date provisions
under the Code (e.g., § 706(b)(4)(A)(ii),
§ 898(c)(3)(B), § 1.921–1T(b)(6), and the
special provision in § 706(b)(4)(B)) or regulations, or any other limitation under sections 4.02 and 7.02(2) of this revenue procedure or sections 4.02 and 7.02(2) of Rev.
Proc. 2006–46.
.10 CFCs. In the case of a CFC that revokes its one month deferral election under § 898, the CFC shall not be eligible to
change its taxable year during a 48-month
period following the first day of the first
effective year unless the change is necessary to conform to a new required taxable
year under § 898.
SECTION 7. GENERAL APPLICATION
PROCEDURES
.01 Approval. Approval is hereby
granted to any corporation within the
scope of this revenue procedure to change
its annual accounting period, provided the
corporation complies with all the applicable provisions of this revenue procedure.
Approval is granted beginning with the
first effective year. A corporation granted
approval under this revenue procedure
to change its annual accounting period
is deemed to have established a business
purpose for the change to the satisfaction
of the Commissioner.
.02 Filing Requirements.
(1) Where to file.
(a) In general. Any corporation (including the common parent of a consolidated group) that wants to change its

November 6, 2006

annual accounting period pursuant to the
provisions of this revenue procedure must
complete and file an application (i.e., a
current Form 1128) with the Director, Internal Revenue Service Center, Attention:
ENTITY CONTROL, where the corporation files its federal income tax return.
No copies of Form 1128 should be sent to
the national office. The corporation also
should attach a copy of the Form 1128 to
the federal income tax return filed for the
first effective year.
(b) Certain foreign corporations. In the
case of a CFC or a noncontrolled section
902 corporation that is not required to file
a federal income tax return, the controlling domestic shareholders (as defined in
§ 1.964–1T(c)(5)) that want to change the
foreign corporation’s accounting period on
behalf of the foreign corporation pursuant
to the provisions of this revenue procedure must satisfy the requirements set forth
in § 1.964–1T(c)(3), and, except as provided in section 7.02(1)(c) of this revenue
procedure, the designated shareholder who
retains the jointly executed consent described in § 1.964–1T(c)(3)(ii) must complete and file a current Form 1128 on behalf of the foreign corporation with its federal income tax return for its taxable year
with or within which ends the first effective year of the foreign corporation. Each
other controlling domestic shareholder (or
its common parent) should also attach a
copy of the Form 1128 to its federal income tax return filed for its taxable year
with or within which ends such taxable
year of the designated shareholder. No
copies of Form 1128 should be sent to the
national office.
(c) Taxable years under section 898. In
the case of a taxable year described in section 4.02(8)(b) of this revenue procedure,
in lieu of filing Form 1128, the CFC’s controlling domestic shareholders must indicate the change in taxable year on the Form
5471 filed with respect to the CFC’s first
effective year.
(2) When to file. (a) In general. The
Form 1128 must be filed no earlier than
the day following the end of the first effective year and no later than the due date
(including extensions) for filing the federal income tax return for the first effective
year.
(b) Certain foreign corporations. An
application that is filed by a controlling

858

domestic shareholder (or its common parent) on behalf of a CFC or a noncontrolled
section 902 corporation is due no later
than the due date (including extensions)
of such shareholder’s (or its common parent’s) federal income tax return for its tax
year with or within which ends the first effective year of the foreign corporation.
(3) Label. In order to assist in the processing of the change in annual accounting
period, reference to this revenue procedure
should be made a part of the Form 1128
or Form 5471 by either typing or legibly
printing the following statement at the top
of page 1 of the Form 1128 or Form 5471:
“FILED UNDER REV. PROC. 2006–45.”
(4) Signature requirements.
(a) In general. Form 1128 must be
signed on behalf of the corporation requesting the change of annual accounting
period by an individual with authority to
bind the corporation in such matters. If the
corporation is a member of a consolidated
group, the Form 1128 must be signed by
a duly authorized officer of the common
parent. If an agent is authorized to represent the corporation before the Service,
to receive the original or a copy of correspondence concerning the application, or
to perform any other act(s) regarding the
application on behalf of the corporation, a
power of attorney reflecting such authorization(s) should be attached to the application. A corporation’s representative
without a power of attorney to represent
the corporation will not be given any information about the application.
(b) Certain foreign corporations. An
application that is filed on behalf of a CFC
or a noncontrolled section 902 corporation
need not be signed. However, the controlling domestic shareholders must satisfy the
requirement set forth in § 1.964–1T(c)(3)
and the designated shareholder must retain
the jointly executed consent described in
§ 1.964–1T(c)(3)(ii).
(5) No user fee. A user fee is not required for an application filed under this
revenue procedure and, except as provided
in section 8.01 of this revenue procedure,
the receipt of an application filed under
this revenue procedure generally will not
be acknowledged.
(6) Additional information. In the case
of a corporation changing to a natural
business year that satisfies the 25-percent
gross receipts test described in section

2006–45 I.R.B.

5.06 of this revenue procedure, the corporation must supply the gross receipts from
sales and services for the most recent 47
months for itself (or any predecessor) in
compliance with the instructions to Form
1128.
(7) Consolidated application. A common parent must file a single application to
change the annual accounting period of its
consolidated group, which consists of the
parent and any subsidiary that is a member
of the group on the last day of the short period.
SECTION 8. REVIEW OF
APPLICATION
.01 Service Center Review. A Service
Center may deny a change of annual accounting period under this revenue procedure only if: (a) the Form 1128 is not filed
timely, or (b) the corporation fails to meet
the scope or any term and condition of this
revenue procedure. If the change is denied,
the Service Center will return the Form
1128 with an explanation for the denial.
.02 Review of Director. The appropriate
director may ascertain if the change in annual accounting period was made in compliance with all the applicable provisions
of this revenue procedure. Corporations
changing their annual accounting period
pursuant to this revenue procedure without
complying with all the provisions (including the terms and conditions) of this revenue procedure ordinarily will be deemed
to have initiated the change in annual accounting period without the approval of

the Commissioner. Upon examination, a
corporation that has initiated an unauthorized change of annual accounting period
may be denied the change. For example,
the corporation may be required to recompute its taxable income or loss in accordance with its former (or required, if applicable) taxable year.
SECTION 9. EFFECTIVE DATE
This revenue procedure generally is effective for all changes in annual accounting periods for which the first effective
year ends on or after October 18, 2006.
However, if the time period for filing Form
1128 or Form 5471 with respect to a taxable year set forth in section 7.02(2) of this
revenue procedure has not yet expired, a
corporation within the scope of this revenue procedure may elect early application
of the revenue procedure by providing the
notification set forth in section 7.02(3) on
the top of page 1 of Form 1128 or Form
5471 and by satisfying the other procedural requirements of section 7.
SECTION 10. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–37 is clarified, modified, amplified, and superseded.
SECTION 11. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office

of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1786. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information displays
a valid OMB control number.
The collection of information in this
revenue procedure is found in section 7.
The information in section 7 is required in
order to determine whether the corporation
properly obtained automatic approval to
change its annual accounting period. The
likely respondents are corporations. The
estimated total annual reporting burden for
the requirements contained in section 7
of this revenue procedure is reflected in
the burden estimates for Forms 1128 and
5471.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Roy A. Hirschhorn and
Jeffrey Marshall of the Office of Associate Chief Counsel (Income Tax and
Accounting). For further information regarding this revenue procedure, contact
Mr. Marshall at (202) 622–4960 (not a
toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting.
(Also Part I, §§ 441, 442, 444, 706, 1378; 1.441–1, 1.441–3, 1.442–1, 1.706–1, 1.1378–1.)

Rev. Proc. 2006–46
TABLE OF CONTENTS
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 861
SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 861

.01 Taxable Year Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Annual accounting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Required taxable year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.02 Adoption of a Taxable Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.03 Change in Taxable Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In general.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Annualization of short period return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) No retroactive change in annual accounting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006–45 I.R.B.

859

861
861
861
861
862
862
862
862
862

November 6, 2006