Taxpayer receives 45 days to file a late accounting-period change

Plain-English summary

A development entity missed the deadline to use the automatic procedure for changing its annual accounting period under Revenue Procedure 2006-46. Its accountant learned of the business need for the change too late to complete the review and filing by the deadline, and the taxpayer said it had relied on the accountant for advice and timely filing. The taxpayer requested relief within 90 days of the missed due date, had not yet filed the return for the first effective year, and represented that a late election would not reduce its aggregate tax liability. The IRS found reasonable reliance, good faith, and no prejudice to the government under Treasury Regulation section 301.9100-3. It granted 45 days from the ruling date to file the required form and the return for the first effective year, following the filing instructions in Revenue Procedure 2006-46.

Ruling snapshot

• Question: Could the taxpayer receive extra time to request an automatic accounting-period change under section 442?
• Outcome: Approved. The taxpayer received 45 days from the ruling date to file the form and return.
• Key authorities: IRC § 442; Treas. Reg. §§ 1.442-1(b) and 301.9100-1 through 301.9100-3; Rev. Proc. 2006-46

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201922024                                             Third Party Communication: None
Release Date: 5/31/2019                                       Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.09-00,
              442.00-00                                       Person To Contact:
                                                              ------------------------, ID No. ------------------
----------------------                                        ----------------------------------------------------
-------------------------------------------------             Telephone Number:
--------------------------                                    ----------------------
------------------------------                                Refer Reply To:
                                                              CC:ITA:B05
                                                              PLR-127081-18
                                                              Date: February 19, 2019




Legend

Taxpayer                      = --------------------------------------------------------------------
Date 1                        = ----------------------
Date 2                        = ------
Date 3                        = ---------
Form                          = -------------------------------------------------------------------
Year                          = -------
Owner                         = --------------------
Accountant                    = ----------------------------
First Effective Year          = ----------------------------


Dear --------------:

This letter responds to your letter requesting an extension of time under § 301.9100-3 of
the Procedure and Administration Regulations to make a regulatory election.
Specifically, you have asked for an extension of time to request under Revenue
Procedure 2006-46 an automatic approval to adopt, change, or retain annual
accounting period under § 442 of the Internal Revenue Code and § 1.442-1(b) of the
Income Tax Regulations.

                                                     FACTS

Taxpayer was established on Date 1 as a development entity and is owned 100% by
Owner. Taxpayer files its annual federal income tax return on a fiscal year that ends on
Date 2. In early March of Year, Accountant became aware of the business situation that
required Taxpayer to change its accounting period. By the time Accountant completed
her review of the documents, the due date for submitting a request through the
exclusive automatic procedure under Revenue Procedure 2006-46 had expired.
PLR-127081-18                                 2

Taxpayer submitted the request for the change within 90 days from the due date for
filing Form and has not filed its tax return for the First Effective Year.

Taxpayer represents that it relied on Accountant for advice on appropriate actions and
to for timely filing of the necessary documents with the Internal Revenue Service.

Taxpayer also represents that granting relief under § 301.9100-3 will not result in a
lower tax liability in the aggregate for all years to which the requested change would
apply than Taxpayer would have had if the change had been timely made.

                                  LAW AND ANALYSIS

Revenue Procedure 2006-46, 2006-45 I.R.B. 859, provides the exclusive procedures for
a certain taxpayer to obtain an automatic approval to adopt, change, or retain its annual
accounting period under § 442 of the Internal Revenue Code and § 1.442-1(b) of the
Income Tax Regulations.

Section 7.02(2) of Revenue Procedure 2006-46 provides that the Form 1128,
Application to Adopt, Change, or Retain a Tax Year, 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.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner
will use to determine whether to grant an extension of time to make a regulatory
election. Section 301.9100-3(a) provides that requests for extensions of time for
regulatory elections (other than specific automatic extensions covered in § 301.9100-2)
will be granted when the taxpayer provides evidence (including affidavits) to establish
that the taxpayer acted reasonably and in good faith and the grant of relief will not
prejudice the interests of the Government.

Under § 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in good
faith if the taxpayer requests relief before the failure to make the regulatory election is
discovered by the Service, reasonably relied on a qualified tax professional, and the tax
professional failed to make, or advise the taxpayer to make, the election. However, a
taxpayer is not considered to have reasonably relied on a qualified tax professional if
the taxpayer knew or should have known that the professional was not competent to
render advice on the regulatory election or was not aware of all relevant facts.

In addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer—

       (i)    seeks to alter a return position for which an accuracy-related penalty has
              been or could be imposed under § 6662 at the time the taxpayer requests
PLR-127081-18                                 3

               relief, and the new position requires or permits a regulatory election for
               which relief is requested;

       (ii)    was fully informed in all material respects of the required election and
               related tax consequences but chose not to make the election; or

       (iii)   uses hindsight in requesting relief. If specific facts have changed since the
               original deadline that make the election advantageous to a taxpayer, the
               Service will not ordinarily grant relief.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make the regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief.

Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced
if granting relief would result in a taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money).

Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made or
any taxable year that would have been affected by the election, had it been timely
made, are closed by the period of limitations on assessment under § 6501(a) before the
taxpayer’s receipt of a ruling granting relief under this section.

Based on the information submitted by Taxpayer, we conclude that (1) Taxpayer has
acted reasonably and in good faith under § 301.9100-3(b), and (2) the interests of the
Government will not be prejudiced by the granting of relief under § 301.9100-3(c).

We are returning Taxpayer’s Form with this letter. Taxpayer must change its accounting
period in accordance with the appropriate provisions of Rev. Proc. 2006-46. The Form
must be filed with the Director, Internal Revenue Service Center, Attention: ENTITY
CONTROL, where Taxpayer files its federal income tax return. In order to assist in the
processing, reference to this revenue procedure must be made a part of the Form by
either typing or legibly printing the following statement at the top of page 1: FILED
UNDER REV. PROC. 2006-46. Further, Taxpayer must attach a copy of the Form to the
federal income tax return filed for First Effective Year. Taxpayer must also submit any
additional information required to be submitted by section 7.02(6) of Rev. Proc. 2006-

46. A copy of this letter should be attached to certify that Taxpayer had received an
extension of time to file Form.

                                       CONCLUSION
PLR-127081-18                                 4

Accordingly, based solely on the facts and information submitted and the
representations made in the ruling request, we grant Taxpayer an extension of 45 days
from the date of this letter ruling to file Form and the return for First Effective Year to
make the change under Revenue Procedure 2006-46.

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

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for ruling, it is subject to verification on examination.
In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.



                                       Sincerely,


                                       William A. Jackson
                                       Branch Chief, Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)


Enclosure (1)