Change in accounting period when return for short year shows an NOL.
Regs. Sec. 1.442-1 provides that a taxpayer must obtain prior IRS approval to change its annual accounting period or the change must be authorized under the regulations. Prior approval is obtained by filing Form 1128, Application to Adopt, Change or Retain a Tax Year, with the Service by the fifteenth day of the second calendar month following the close of the short tax year.
Regs. Sec. 1.442-1(c)(1) provides a special rule for certain corporations under which the annual accounting period may be changed without prior approval if certain conditions and filing requirements are met. One of the conditions is that the corporation not have a net operating loss (NOL) in the short period required to make the change of the annual accounting period. If all of the regulation's requirements are met, the taxpayer need only attach the required statement to a timely filed tax return for the short period to make the change.
Rev. Proc. 92-13 allows for an exception to the requirement that no NOL occurred in the short period. A corporation may have a loss in the year of change. The price for incurring an NOL in the period is that the loss may not be carried back and must be deducted ratably over a six-year period beginning with the first tax year after the short period. However, if the loss is $10,000 or less, or results from a short period of nine months or longer and is less than the NOL for a full 12-month period (beginning with the first day of the short period), the loss may be carried back or forward in accordance with Sec. 172(b). However, any unused credits for the short period may not be carried back; the corporation must carry them forward.
If Rev. Proc. 92-13 is used to obtain the automatic change of year-end, a Form 1128 must be filed to notify the IRS of the action being taken. From Joe Marchbein, CPA, Rubin, Brown, Gornstein & Co. LLP, Saint Louis, Missouri
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|Title Annotation:||net operating loss|
|Publication:||The Tax Adviser|
|Article Type:||Brief Article|
|Date:||Aug 1, 1997|
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