SECTION 1. PURPOSE

This notice clarifies and modifies certain provisions in Rev. Proc. 2002–37, 2002–22 I.R.B. 1030, Rev. Proc. 2002– 38, 2002–22 I.R.B. 1037, and Rev. Proc. 2002–39, 2002–22 I.R.B. 1046, which provide procedures for obtaining approval of an adoption, change, or retention of an annual accounting period. Specifically, this notice provides that:

1. certain entities with required taxable years that must concurrently change their annual accounting period as a term and condition for the approval of a related taxpayer’s change of annual accounting period must do so under the applicable automatic approval procedures notwithstanding any limitations in those procedures to the contrary or any conflicting testing date provisions;

2. the Internal Revenue Service will not apply the rule in section 5.06 of Rev. Proc. 2002–38, under which less than 100% ownership of an S corporation by a tax-exempt entity is disregarded for purposes of determining the S corporation’s ownership taxable year, to require any S corporation to change its annual accounting period in any taxable year beginning before January 1, 2003;

3. a partnership that is allowed, under section 4.01(5) of Rev. Proc. 2002–38, to retain its current taxable year for one year in the case of a minor, temporary percent change in ownership may also apply to retain its current year, or to change to any other taxable year for which it can establish a business purpose, under Rev. Proc. 2002–38 or Rev. Proc. 2002–39, whichever is applicable;

4. an interest in a pass-through entity that does not meet section 4.02(2)(c) of Rev. Proc. 2002–37 may still be disregarded under the de minimis test in section 4.02(2)(d) of that revenue procedure;

a foreign personal holding company (FPHC) apply as well to a non-corporate United States shareholder; and

6. the exception to the terms and conditions provided in each of the revenue procedures respecting record keeping and book conformity pertains to books and records kept for financial statement, and not tax, purposes.