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Washington Tax Alert April 27, 2011

Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com
April 27, 2011

C corporations and insurance companies can change their annual accounting period automatically if they satisfy the terms and conditions of Rev. Proc. 2006-45. Under the revenue procedure, a corporation changes its annual accounting period by filing a Form 1128 with the Service Center where the corporation files its Federal income tax return, and attaching a copy of the Form 1128 to a timely filed tax return for the short period required to effect the change.

The National Office recently issued 9100 relief to C corporation that changed its annual accounting period under Rev. Proc. 2006-45 from a fiscal year ending August 31 to a calendar year ending December 31, but failed to attach a copy of the Form 1128 to its tax return for the short period. In addition, it appears the corporation may not have filed the original Form 1128 with the Service Center on a timely basis, although the ruling is not clear on this point. See PLR 201116012.

This 9100 ruling is unusual because the Service Center had accepted the corporation’s tax return for the short period without an attached Form 1128. In light of the Service Center’s acceptance of the tax return for the short period required to make the change in annual accounting period, many taxpayers in a similar situation would not have been overly concerned about the failure to comply with the filing requirements of Rev. Proc. 2006-45, § 7.02. Because the Service Center accepted the short period return, it is unlikely an examining agent would later challenge the corporation's change in annual accounting period. Nevertheless, out of an abundance of caution, the taxpayer in this case sought and obtained 9100 relief from the National Office that its Form 1128 would be considered timely filed.