PLR 200652037: Late accounting-period application accepted despite conflicting year-end descriptions

Plain-English summary

A taxpayer sought relief for a late Form 1128 application to change its annual accounting period after an error or misunderstanding caused a missed deadline. The IRS found reasonable conduct, good faith, and no prejudice to the government, and treated the application as timely under the election-extension regulations. The taxpayer was required to file the short-period income tax return within 45 days of the ruling. The letter contains conflicting descriptions: its opening describes a change from December 31 to September 30 for a January through September 2005 short year, but its approval paragraph describes a change to December 31 effective October 1, 2005. The ruling is limited to timely filing of Form 1128, and the text does not resolve that date conflict.

Ruling snapshot

• Question: May the taxpayer's late Form 1128 be treated as timely filed?
• Outcome: Approved: application considered timely; 45-day return requirement applies, with conflicting accounting-period dates in the release.
• Key authorities: Treas. Reg. §§ 1.442-1(b) and 301.9100-3; Rev. Proc. 2002-37.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200652037
Third Party Communication: None
Release Date: 12/29/2006
Date of Communication: Not Applicable
Index Number: 9100.09-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:ITA:B5
In Re:
PLR-135785-06
-------------------------------- Date:
------------------------------- September 13, 2006
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Dear -------------:

This is in reference to a Form 1128, Application to Adopt, Change, or Retain a Tax Year, submitted on behalf of the above-named taxpayer, requesting permission to change its annual accounting period, for federal income tax purposes, from a taxable year ending December 31, to a taxable year ending September 30, effective for the tax year beginning January 1, 2005, and ending September 30, 2005. The taxpayer has requested that the Form 1128 be considered timely filed under the authority contained in § 301.9100-3 of the Procedure and Administration Regulations.

The taxpayer's Form 1128 requesting a change in accounting period to a tax year ending September 30, 2005, was due on or before June 15, 2006 with an extension, but was not timely filed; however, the form and the request for discretionary administrative relief were filed within 90 days of such due date. The information furnished shows that the taxpayer intended to make the change and to file Form 1128 on a timely basis. Due to an error or misunderstanding, however, the form was not timely filed. The error was not due to any lack of due diligence or prompt action on the part of Taxpayer.

Section 1.442-1(b) of the Income Tax Regulations provides that in order to secure the Commissioner's consent to a change in annual accounting period, the taxpayer must file an application on Form 1128 with the Commissioner within such time and in such manner as is provided in administrative procedures published by the

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Commissioner. But for a timely filing, the taxpayer’s Form 1128 would be subject to the automatic consent procedures of Rev. Proc. 2002-37, 2002-1 C.B. 1030, and due on or before the due date (including extensions) of the return of tax required for the short period (June 15, 2006).

Section 301.9100-3(a) of the regulations provides that requests for extensions of time for regulatory elections that do not meet the requirements of § 301.9100-2 (automatic extensions), such as the instant case, must be made under the rules of § 301.9100-3. Requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that the granting of relief will not prejudice the interests of the government.

Based on the facts and information submitted and the representations made, it is held that the taxpayer has acted reasonably and in good faith, and that the granting of relief will not prejudice the interests of the government. Accordingly, the requirements of the regulations for the granting of relief have been satisfied in this case, and taxpayer's late-filed Form 1128 requesting permission to change to a tax year ending December 31, effective for the tax year beginning October 1, 2005, is considered timely filed.

The taxpayer must file a federal income tax return for the short period necessary to effect the change within 45 days of the date of this ruling. A copy of this ruling should be attached to that return.

The ruling contained in this letter is based upon facts and representations furnished by the taxpayer, and is limited to the filing of Form 1128. Except as specifically addressed herein, no opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the Code or regulations that may be applicable thereto. This office has not verified any of the material submitted in support of the requested ruling; verification of factual information, representations, and other data is within the examination jurisdiction of the taxpayer's IRS Industry Director.

A copy of this letter ruling and taxpayer's Form 1128 are being forwarded to the service center where the taxpayer files its federal income tax returns, with instructions that the Form 1128 be considered timely filed, and processed in accordance with established procedures under Rev. Proc. 2002-37.

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This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Sincerely yours,

/s/ George F. Wright

George F. Wright
Senior Technician Reviewer, Branch 5
Office of Associate Chief Counsel
(Income Tax & Accounting)

Enclosures:
Copy of this letter
Copy for § 6110 purposes