SECTION 7. PROCESSING OF

APPLICATION

.01 Service Discretion . Notwithstanding any other provision of this revenue procedure, the Service reserves the right to decline to process any application filed under this revenue procedure in situations in which it would not be in the best interest of sound tax administration to permit the requested adoption, change, or retention. In this regard, the Service will consider whether the adoption, change, or retention in annual accounting period would clearly and directly frustrate compliance efforts of the Service in administering the income tax laws.

.02 Applicability of Rev. Proc. 2002–1, Rev. Proc. 2002–4, and Any Successor Revenue Procedures . Rev. Proc. 2002–1 or, for tax-exempt organizations, Rev. Proc. 2002–4, 2002–1 I.R.B. 127 (or any successors) will apply to any request made under this revenue procedure to adopt, change, or retain an annual accounting period.

.03 Incomplete Application — 21 Day Rule . If the Service receives an application that is not completed properly in accordance with the instructions on the Form 1128 (or Form 2553) and the provisions of this revenue procedure, or if supplemental information is needed, the Service will notify the taxpayer. The notification will specify the information that needs to be provided, and the taxpayer will be permitted 21 days from the date of the notification to furnish the necessary information. The Service reserves the right to impose shorter reply periods if subsequent requests for additional information are made. If the required information is not submitted to the Service within the reply period, the application will not be processed. A reasonable additional

period to furnish information may be granted to a taxpayer. Any request for an extension of time to furnish necessary information must be made in writing and submitted within the 21-day period. If the extension request is denied, there is no right of appeal.

.04 Conference in the National Office . The taxpayer must complete the appropriate line on the Form 1128, or attach a statement to the Form 2553, to request a conference of right if an adverse response is contemplated by the Service. If the taxpayer does not complete the appropriate line on the Form 1128, attach a statement to the Form 2553, or request a conference in a later written communication, the Service will presume that the taxpayer does not desire a conference. If requested, a conference will be arranged in the national office prior to the Service’s formal reply to the taxpayer’s application. For taxpayers other than exempt organizations, see section 11 of Rev. Proc. 2002–1 (or any successor). For exempt organizations, see section 12 of Rev. Proc. 2002–4 (or any successor).

.05 Letter Ruling . Unless otherwise specifically provided, the Commissioner’s approval to adopt, change, or retain a taxpayer’s annual accounting period will be set forth in a letter ruling from the national office that identifies the taxpayer’s former annual accounting period; the annual accounting period the taxpayer is adopting, changing to, or retaining; the short period necessary to effect a change; and the terms, conditions, and adjustments under which the adoption, change, or retention is to be effected. See § 1. 442–1(b). A copy of the letter ruling must be attached to the taxpayer’s federal income tax return for the first effective year.

.06 Effect of Noncompliance . If a taxpayer adopts, changes, or retains an annual accounting period without authorization or without complying with all of the provisions of this revenue procedure and the letter ruling granting permission for the change, the taxpayer has initiated an adoption, change, or retention of annual accounting period without obtaining the approval of the Commissioner as required by §§ 441(i), 442, 706(b), and 1378. Upon examination, a taxpayer that has initiated an unauthorized adoption, change, or retention of annual accounting

period may be denied the adoption, change, or retention. For example, the taxpayer may be required to recompute its taxable income or loss in accordance with its former (or required, if applicable) taxable year.

.07 Effect on Other Offices of the Ser- vice . The provisions of this revenue procedure are not intended to preclude an appropriate representative of the Service (for example, an appeals officer with delegated settlement authority) from settling a particular taxpayer’s case involving an accounting period issue by agreeing to terms, conditions, and adjustments that differ from those that might be provided under this revenue procedure when it is in the best interest of the government to do so.