Late Form 1128 to change a corporation's tax year allowed under 9100 relief

Plain-English summary

A C corporation that provides engineering and architectural design services wanted to change its tax year end and file Form 1128 (Application to Adopt, Change, or Retain a Tax Year) to do so. Under the automatic change procedures of Rev. Proc. 2006-45, that form has to be filed by the extended due date of the return for the first year of the change. The company hired an accounting firm to get an extension and file its return, but the firm never obtained the extension, so the return was late and the Form 1128 was treated as late too. The company asked the IRS for "9100 relief" (Treas. Reg. §§ 301.9100-1 through 301.9100-3) to treat the form as timely. The IRS agreed: the taxpayer acted reasonably and in good faith by relying on a qualified tax professional who dropped the ball, and relief did not prejudice the government because the request came less than 90 days after the return's due date. The Form 1128 is therefore treated as timely filed. The IRS did not decide whether the company actually qualifies for the automatic change itself, only that the late filing is excused.

Ruling snapshot

• Question: May a corporation that filed Form 1128 late, because its accountant failed to secure a filing extension, get an extension of time to make the accounting-period change election?
• Outcome: Approved (Form 1128 treated as timely filed)
• Key authorities: IRC §§ 441, 442; Rev. Proc. 2006-45; Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                       Department of the Treasury
                                               Washington, DC 20224

Number: 202320002
Release Date: 5/19/2023
Index Number: 9100.09-00
                                               Person To Contact:
                                                 ------------------------, ID No. ----------------
                                               Telephone Number:
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                                                 --------------------
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                                               Refer Reply To:
--------------------------------------           CC:ITA:B05
-----------------------------------------------  PLR-116185-22
                                               Date:
                                                 February 21, 2023


             Taxpayer        =   --------------------------------------------------------------------------
             Firm            =   ------------------------------
             Date 1          =   ----------------------
             Date 2          =   ------------
             Date 3          =   ----------------------------
             Date 4          =   ----------------------
             Date 5          =   -------------------------
             Year 1          =   -------


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

This letter responds to Taxpayer’s request dated Date 1, seeking a private letter ruling
granting relief to make a late election pursuant to §§ 301.9100-1 through 301.9100-3 of
the Procedure and Administration Regulations. Specifically, Taxpayer requests an
extension of time to file Form 1128, Application to Adopt, Change, or Retain a Tax Year,
to change to a taxable year ending on Date 3, effective for Year 1.

                                    FACTS

Taxpayer is a corporation taxed under Subchapter C. Taxpayer is a business that
provides engineering and architectural design services. Taxpayer has a current year
end of Date 2, but would like to change to a taxable year ending on Date 3.

Taxpayer represents that it intended to change to a taxable year ending Date 3 by filing
a timely Form 1128. Taxpayer represents that if timely filed, the request to change the
taxable year end from Date 2 to Date 3 would have qualified under the automatic
procedures found in Rev. Proc. 2006-45, 2006-2 C.B. 851. Taxpayer engaged Firm to
obtain an extension of time for filing Taxpayer’s Year 1 tax return, and prepare and file
the Year 1 tax return by the extended due date. Taxpayer provided Firm all necessary
information to request an extension. However, due to an administrative issue, Firm did
not obtain an extension to file the tax return.

The discovery of the failure to file the extension was discovered after the original
deadline for the Year 1 tax return, resulting in Form 1128 being considered late.
Taxpayer filed Form 1128 with the Service Center on Date 4. Taxpayer also filed a copy
of Form 1128 with the Year 1 Form 1120, U.S. Corporation Income Tax Return, filed on
Date 5.

                              LAW AND ANALYSIS

Section 441(a) of the Internal Revenue Code provides that taxable income is computed
on the basis of the taxpayer's taxable year. Section 441(b) and § 1.441-1(b)(1) of the
Income Tax Regulations 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.

Section 441(e) provides that in the case of any taxpayer who has made the election
provided by subsection (f), the term fiscal year means the annual period (varying from
52 to 53 weeks) so elected.

Section 441(f)(1) provides, in general, that a taxpayer may elect to compute its taxable
income on the basis of a fiscal year which varies from 52 to 53 weeks, ends always on
the same day of the week, and ends always on (A) whatever date this same day of the
week last occurs in a calendar month, or (B) whatever date this same day of the week
falls which is nearest to the last day of the calendar month.

Section 442 provides that if a taxpayer changes its annual accounting period, the new
accounting period shall become the taxpayer’s taxable year only if the change is
approved by the Secretary.

Section 4.01 of Rev. Proc. 2006-45 provides that a change to a 52-53 week taxable
year may be an automatic accounting period change, provided the requirements of Rev.
Proc. 2006-45 are met. Section 7.02(2) of Rev. Proc. 2006-45 provides that taxpayer
must file a form 1128 no earlier than the day following the first effective year (generally,
the short period required to make the change), and no later than the due date (including
extensions) for filing the 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 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.

Rev. Proc. 2006-45 provides the time and manner for a taxpayer within its scope to
change its accounting period. Therefore, such a change is a regulatory election as
defined § 301.9100-1(b).

Under section 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, or 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, section 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
               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.

Regulation section 301.9100-3(c)(1)(i) states that the interests of the Government are
prejudiced if granting relief will 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 made on a timely basis.

Regulation section 301.9100-3(c)(1)(ii) provides that relief ordinarily will not be granted
if the tax year in which the regulatory election should have been made, or any tax year
that would have been affected by the election had it been timely made, is closed by the
statute of limitations on assessment before the taxpayer's receipt of the ruling granting
9100 relief.

Section 301.9100-3(c)(3) provides that a change with respect to an accounting period
regulatory election prejudices the interests of the government if the request for relief is
made more than 90 days after the due date for filing the Form 1128.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the government. Taxpayer reasonably relied
on a qualified tax professional and that professional failed to make the election. Further,
Taxpayer’s request for relief was filed less than 90 days after the due date of
Taxpayer’s Year 1 tax return.

Accordingly, based solely on the facts and information submitted, and the
representations made in the ruling request, Taxpayer has satisfied the requirements for
the granting of relief. Consequently, Taxpayer’s Form 1128, requesting a change to a
taxable year ending Date 3 filed on Date 5, is considered timely filed.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by an appropriate party. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. We express no opinion regarding the tax treatment of the instant transaction
under the provisions of any other sections of the Code or regulations that may be
applicable, or regarding the tax treatment of any conditions existing at the time of, or
effects resulting from, the instant transaction. Specifically, this letter expresses no
opinion as to whether Taxpayer qualifies to make an automatic change under Rev.
Proc. 2006-45.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being faxed to your authorized representative.

A copy of this letter must be attached to any 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.


                                       Sincerely,



                                       Amy J. Pfalzgraf
                                       Branch Chief (Acting), Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)

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