Taxpayer is denied extra time to file Form 1128 for an accounting-period change

Plain-English summary

A taxpayer asked for an extension to file Form 1128 and change its annual accounting period under IRC § 442. The application was due with the short-period return, but the taxpayer did not seek late-election relief until more than 90 days after the Form 1128 deadline. The IRS found that the taxpayer had not acted reasonably and in good faith under Treas. Reg. § 301.9100-3(b). It also found no unusual and compelling circumstances to overcome the rule that a request involving an accounting-period election filed more than 90 days late prejudices the government's interests. The IRS therefore denied the requested extension.

Ruling snapshot

• Question: May the taxpayer receive an extension to file Form 1128 and change its annual accounting period?
• Outcome: Denied because the taxpayer failed the reasonable-and-good-faith standard and did not show unusual and compelling circumstances
• Key authorities: IRC § 442; Treas. Reg. §§ 1.442-1(b), 301.9100-1 through 301.9100-3; Rev. Proc. 2006-45

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202420021 Third Party Communication: None
Release Date: 5/17/2024 Date of Communication: Not Applicable
Index Number: 442.00-00, 9100.00-00
Person To Contact:
------------------------, ID No. ------------------
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---------------------------------------------------------- Telephone Number:
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------------------------------- Refer Reply To:
CC:ITA:B08
PLR-116634-23
Date:
February 16, 2024

                                                LEGEND

                  Taxpayer       =    ------------------------------------------------------
                  Date 1         =    ----------------------
                  Date 2         =    ------------------
                  Date 3         =    ---------------
                  Date 4         =    -------------------------
                  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 from a taxable year ending Date 2 to a taxable year ending on Date 3,
effective for Year 1. The Form 1128 requesting a change in accounting period to a tax
year ending Date 3 was due on or before Date 4. The information provided indicates
that Taxpayer did not file its Form 1128 by the due date of the return (including
extensions) for the short period required to effect such change. Furthermore, Taxpayer
did not request an extension of time to file its Form 1128 under § 301.9100-3 until more
than 90 days after the due date of the Form 1128.
PLR-116634-23 2

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 1.442-1(b) of the Income Tax Regulations along with the instructions to Form
1128 and Revenue Procedure 2006-45, 2006-45 I.R.B. 851, provide generally that to
secure the Commissioner's consent to a change in accounting period, the taxpayer
must file an application on Form 1128 with the Commissioner on or before the due date
for filing of the short period return.

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 section 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 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 section 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.

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.
PLR-116634-23 3

Section 301.9100-3(c)(3) provides, in part, that the interests of the Government are
deemed to be prejudiced except in unusual and compelling circumstances if an election
is an accounting period regulatory election (other than the election to use other than the
required taxable year under section 444) and the request for relief is filed more than 90
days after the due date for filing the Form 1128, Application to Adopt, Change, or Retain
a Tax Year (or other required statement).

Based on the facts and representations submitted, we conclude that Taxpayer has not
acted reasonably and in good faith and has not satisfied the requirements under section
301.9100-3(b) for granting an extension of time to file a Form 1128 to change its
accounting period. Furthermore, Taxpayer has failed to demonstrate unusual and
compelling circumstances and, accordingly, the Government’s interests are deemed
prejudiced.

Thus, Taxpayer’s request for an extension of time to file the Form 1128 is denied.

No opinion is expressed as to the tax treatment of the transaction under the provisions
of any other sections of the Code and regulations which may be applicable thereto or
the tax treatment of any conditions existing at the time of or effects resulting from the
transaction which are not specifically set forth by the above ruling.

The ruling contained in this letter ruling is based upon facts and representations submitted
by Taxpayer with accompanying penalty of perjury statements executed by appropriate
parties.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
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 sent to your authorized representative.

                                       Sincerely,


                                       Erika C. Reigle
                                       Senior Technician Reviewer, Branch 8
                                       Office of Associate Chief Counsel
                                       (Income Tax and Accounting)

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