S corporation cannot change its tax year merely to accelerate a refund

Plain-English summary

Chief Counsel considered whether an S corporation could recover an overpaid federal tax deposit sooner by changing its accounting period. Because the corporation already used a December 31 year-end, Section 1378 and Revenue Procedure 2006-46 would require it to establish an acceptable business purpose for another accounting period. Counsel concluded that accelerating a refund, even in a sympathetic case, is not a business purpose that would satisfy the Commissioner. A requested change would also carry a $5,000 user fee and could take several months. Counsel therefore advised that the excess funds could not be returned until the corporation filed its return and its liability was assessed.

Ruling snapshot

• Question: Could the S corporation change its accounting period to obtain an earlier refund of an overpaid federal tax deposit?
• Outcome: Advice given, the proposed accounting-period change was not viable
• Key authorities: IRC §§ 1378 and 444; Treas. Reg. § 1.1378-1(a); Rev. Proc. 2006-46

Full text (IRS public release)

Number: 202141023
Release Date: 10/15/2021

ID:        CCA_2021090711494204
UILC:      1378.00-00, 444.00-00, 6402.00-00


From:------------------------
Sent: Wednesday, September 1, 2021 4:48 PM
To: ---------------------------------------------------------------------------------------------------------------
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Subject: RE: TAMIS: 7337481 - more advice from Counsel

Thanks for your patience while I explored again whether changing the accounting period
could help. Unfortunately, one of the accounting experts in Counsel has confirmed that
it is not a viable solution for several reasons. Take a look at Rev. Proc. 2006-46. Here
is the pertinent section:

         S corporations. Section 1378 and § 1.1378-1(a) provide that the taxable year of an
         S corporation must be a permitted year. The term “permitted year” means (1) the
         required taxable year (i.e., a taxable year ending on December 31), (2) a taxable
         year elected under § 444, (3) a 52-53-week taxable year ending with reference to
         the required taxable year or a taxable year elected under § 444, or (4) any other
         accounting period for which the corporation establishes to the satisfaction of the
         Commissioner a business purpose.

Because the taxpayer already has a 12/31 year-end, the taxpayer would need to change
to some other accounting period but would have to have a business purpose that would
satisfy the Commissioner. It is Counsel’s position that a change in accounting period
simply to get a refund sooner than usual (even recognizing the sympathetic nature of this
case) is not a business purpose that would satisfy the Commissioner. In addition, the
taxpayer would have to pay a user fee of $5,000 for the requested change in accounting
period. Further, the change of accounting period process could take several months.

I know this has been a frustrating case but I simply do not see any way to return the
excess funds until the return has been filed and the liability assessed.

------- – please post in ------------------– Overpaid Federal Tax Deposit, POSTN-116300-
21.
give-