SECTION 8. EFFECT OF APPROVAL

(1) In general . Section 1.442– 1(a)(1) generally provides that a taxpayer that wants to change its annual accounting period and use a new taxable year must obtain approval of the Commissioner.

(2) Annualization of short period return . Section 443(b) and § 1.443– 1(b)(1)(i) provide that if a return is made for a short period resulting from a change of an annual accounting period, the taxable income for the short period must be placed on an annual basis by multiplying the income by 12 and dividing the result by the number of months in the short period. Unless § 443(b)(2) and § 1.443– 1(b)(2) apply, the tax for the short period generally is the same part of the tax computed on an annual basis as the number of months in the short period is of 12 months. But see, for example, §§ 1.706– 1(b)(8)(i)(B), 1.852–3(e), 1.857–2(a)(4), 1.1378–1(c)(2), and 1.1502–76 for exceptions to this general rule for a partnership, a regulated investment company (RIC), a real estate investment trust (REIT), an S corporation, and a subsidiary ceasing to be a member of a consolidated group, respectively.

(3) No retroactive change in annual accounting period . Unless specifically authorized by the Commissioner, a taxpayer may not request, or otherwise make, a retroactive change in annual accounting period, regardless of whether the change is to a required taxable year.

.04 Retention of Taxable Year . In certain cases, a partnership, S corporation, electing S corporation, or PSC will be required to change its taxable year unless it establishes a business purpose and obtains the approval of the Commissioner under § 442, or makes an election under § 444, to retain its current taxable year. See § 1.441–1(d). For example, a corporation using a June 30 fiscal year that either becomes a PSC or elects to be an S corporation, and as a result is required to use the calendar year, must obtain the approval of the Commissioner to retain its current fiscal year. Similarly, a partnership using a taxable year that corresponds

.03 Change in Taxable Year .

.01 Audit Protection

(1) In general (2) Exceptions .02 Subsequently Required Changes

(1) In general (2) Retroactive change or modifica-

.01 Taxable Year Defined .

(1) In general . Section 441(b) and § 1.441–1(b)(1) provide that the term “taxable year” generally means the taxpayer’s annual accounting period, if it is a calendar or fiscal year, or, if applicable, the taxpayer’s required taxable year.

(2) Annual accounting period . Section 441(c) and § 1.441–1(b)(3) provide that the term “annual accounting period” means the annual period (calendar year or fiscal year) on the basis of which the taxpayer regularly computes its income in keeping its books.

(3) Required taxable year . Section 1.441–1(b)(2) provides that certain taxpayers must use the particular taxable year that is required under the Code and the regulations thereunder. For example, a partnership, S corporation, or personal service corporation (PSC) has a required taxable year that generally conforms to the taxable years of its partners, shareholders, or employee-owners pursuant to §§ 706(b), 1378, and 441(i), respectively. Similarly, a specified foreign corporation has a required taxable year that generally represents the taxable year of its majority U.S. shareholder pursuant to § 898. However, § 1.441–1(b)(2)(ii) describes exceptions under which certain taxpayers may use a taxable year other than their required taxable year. For example, a partnership, S corporation, electing S corporation, or PSC may have a taxable year other than its required taxable year if it makes an election under § 444, elects to use a 52–53-week taxable year that references its required taxable year or a taxable year elected under § 444, or establishes a business purpose and obtains approval under § 442 for that taxable year. See also §§ 706(b), 1378, and 441(i). .02 Adoption of Taxable Year . Generally, a taxpayer may adopt any taxable year that satisfies § 441 and the regulations thereunder without the approval of the Commissioner. However, a partnership, electing S corporation, or PSC that wants to adopt a taxable year other than its required taxable year, a taxable year elected under § 444, or a 52–53-week

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