IRS issues new procedure for automatic accounting period changes.

The Service just released Rev. Proc. 2000-11, which provides updated and revised procedures by which certain corporations may obtain automatic approval to change their annual accounting periods. Rev. Proc. 2000-11 modifies, amplifies and supersedes Rev. Procs. 92-13, 92-13A and 94-12, and is generally effective for annual accounting period changes for which the short period required to effect the change ends after Jan. 17, 2000.

Rev. Proc. 2000-11 generally applies to corporations that have not changed their accounting periods in the last six years and meet certain other requirements. The new procedure is generally broader in scope than its predecessors, eliminating several restrictions that limited the use of prior automatic change rules.

The following are some of the major changes to the automatic period change rules:

1. A corporation may automatically change from a 52-53-week tax year to a tax year that ends with reference to the same month, and vice versa.

2. A Sec. 957 controlled foreign corporation may revoke its one-month deferral election under Sec. 898(c)(1)(B) and automatically change to the tax year of its majority U. S. shareholder.

3. In addition to a change by a subsidiary to its common parent's tax year under the requirement of Regs. Sec. 1.1502-76(a)(1), the following two new categories of changes are not subject to the six-year waiting period between changes in tax years. The first is when a more-than-50%-owned, newly acquired subsidiary changes within 12 months of acquisition to the tax year of its domestic or foreign parent (nonconsolidated tax filing) to file consolidated financial statements. The second is when a corporation changes from a 52-53-week tax year to a tax year that ends with the same month, and vice versa.

4. An automatic change is now available to a corporation that is a partner of a partnership or a beneficiary of a trust or estate if the corporation has a majority interest in the partnership and the partnership is required to change its tax year under Sec. 706(b) to the corporation's new tax, if the corporation's new tax year will result in no change in deferral or in less deferral from the passthrough entity than the corporation's present tax year or if the amount of income from such passthrough entity for each of the prior three tax years is de minimis (defined as both no greater than 5% of the corporation's gross receipts, and $500,000, both individually and in the aggregate).

5. An automatic change is available to shareholders of a foreign sales corporation (FSC) or interest-charge domestic international sales corporation (IC-DISC) if the FSC or IC-DISC in which the corporation is a principal shareholder would be required to change its tax year under Temp. Regs. Sec. 1.921-1T(b)(4) and (6) or if the corporation's new tax year results in no change in deferral or in less deferral from the FSC or IC-DISC than the corporation's present tax year.

6. An automatic change is available to a corporation making an S election effective for the tax year immediately following a change in tax year if the corporation is changing to a permitted year (defined as a calendar year, a tax year permitted under Sec. 444 or an ownership tax year or natural business year).

7. An automatic change is available to a cooperative association (within the meaning of Sec. 1381) with a loss in the short period required to effect the change, if the patrons of the cooperative remain substantially the same before and after the change in tax year (90% or more of the cooperative's stock is owned by the same members).

8. The previous requirement that a net operating loss (NOL) in the short period required to effect the change be deducted ratably over six years has been eliminated. Generally, short-period NOLs may only be carried forward. A short-period NOL, however, may be carried back or forward under Sec. 172 if the NOL is $50,000 or less, or results from a short period of nine months or longer and is less than the NOL for the full 12-month period beginning with the first day of the short period.

9. Taxpayers may use Rev. Proc. 2000-11 whether or not they qualify to use the Regs. Sec. 1.442-(1)(c) automatic rules.

Taxpayers may elect to apply Rev. Proc. 2000-11 early if the time for filing Form 1128, Application to Adopt, Change or Retain a Tax Year, under the revenue procedure has not expired. Taxpayers may also elect to apply the provisions of Rev. Proc. 2000-11 to Forms 1128 already filed with the IRS National Office. A taxpayer must notify the Service that it wants to make the change under the revenue procedure before the later of March 3, 2000, or the issuance of the letter ruling granting or denying the change.

FROM FRANK DEVLIN, CPA, ROBERT TESTOFF, J.D., AND JUDI BRUCE, CPA, WASHINGTON, DC