Accounting Period

A corporation must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Generally, corporations may use a calendar year or a fiscal year. Personal service corporations, however, must use a calendar year unless they meet one of the exceptions discussed under Personal Service Corporation, later. Furthermore, special rules apply to specified foreign corporations. See Specified Foreign Corporations below.

Change of tax year. Generally, a corporation, including a personal service corporation, must get the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, exceptions may apply. See the Instructions for Form 1128 and Pub. 538 for more information.

Specified Foreign Corporations The annual accounting period of a specified foreign corporation (defined below) is generally required to be the tax year of its majority U.S. shareholder. If there is more than one majority shareholder, the required tax year will be the tax year that results in the least aggregate deferral of income to all U.S. shareholders

8 Instructions for Form 1120-F (2025)

of the foreign corporation. For more information, see section 898; Rev. Proc. 2006-45, 2006-2 C.B. 851, available at IRS.gov/irb/ 2006-45_IRB#RP-2006-45 ; and Rev. Proc. 2002-39, 2002-1 C.B. 1046, available at IRS.gov/pub/irs-irbs/irb02-22, as modified by Notice 2002-72, 2002-2 C.B. 843, available at IRS.gov/pub/irs-irbs/irb02-46 .

Specified foreign corporation. A specified foreign corporation (as defined in section 898) is any foreign corporation that is treated as a controlled foreign corporation (CFC) under subpart F (sections 951 through 964) and with respect to which more than 50% of the total voting power or value of all classes of stock of the corporation is treated as owned by a U.S. shareholder.