SECTION 4. SCOPE

.01 Applicability. Except as provided in section 4.02, this revenue procedure, which is the exclusive procedure for individuals within its scope, applies to an individual requesting automatic approval to change the individual’s annual accounting period to a calendar year.

.02 Inapplicability. This revenue procedure does not apply to:

(1) Newly married couples subject to § 1.442–1(d). An individual that is permitted to change to the annual accounting period of the individual’s spouse under § 1.442–1(d). See section 2.04 of this revenue procedure.

(2) Interest in a pass-through entity. An individual that has an interest in a passthrough entity as of the end of the short period. However, an interest in a pass-through entity will be disregarded for this purpose if any of the following conditions are met:

(a) the pass-through entity would be required under the Code or regulations to change its taxable year to the new calendar taxable year of the individual (or, if applicable in the case of a controlled foreign corporation (CFC) or foreign personal holding company (FPHC) to a taxable year that begins one month earlier than the new calendar taxable year of the individual). See section 6.07 of this revenue procedure for a special term and condition related to this exception;

(b) the pass-through entity is a fiscal year partnership that is owned equally (50percent) by two partners, one or both of whom are individuals, and the individual and the partnership both want to change to the new calendar taxable year of the other 50-percent partner. See section 6.07 of this revenue procedure for a special term and condition related to this exception;

(c) the new calendar taxable year of the individual would result in no change in, or less deferral (as described in § 1.706– 1(b)(3)) of income from the pass-through entity than the present taxable year of the individual. If the pass-through entity is a partnership, CFC, or FPHC, the individual should compare the existing deferral period (between the pass-through entity’s and the individual’s current taxable years) with the new deferral period (between the new required year of the pass-through entity and the individual’s new calendar taxable year). See section 4.04 of this revenue procedure for an example of this rule; or

(d) for pass-through entities not qualifying for the exceptions in section 4.02(2)(a), (b), or (c) of this revenue procedure, the pass-through entity in which the individual has an interest has been in existence for at least three taxable years and the interest is de minimis . For this pur

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ally must be made on the basis of a full 12 months ending on the last day of the new calendar taxable year, unless the individual secures the approval of the Commissioner to change that taxable year.

.05 Creation of Net Operating Loss. If the individual generates a net operating loss (NOL) in the short period required to effect a change in annual accounting period, the individual may not carry the NOL back, but must carry it over in accordance with the provisions of § 172, beginning with the first taxable year after the short period. However, the short period NOL is carried back or carried over in accordance with § 172 if it is either: (a) $10,000 or less, or (b) results from a short period of 9 months or longer and is less than the NOL that would have resulted from a full 12-month period beginning with the first day of the short period.

.06 Creation of General Business Cred- its. If there is an unused general business credit or any other unused credit generated in the short period, the individual must carry that unused credit forward. An unused credit from the short period may not be carried back.

.07 Concurrent Change for Related En- tities. If an individual’s interest in a passthrough entity is disregarded pursuant to section 4.02(2) because the related entity will be required to change its taxable year to the individual’s new calendar taxable year, the related entity must change its taxable year either under Rev. Proc. 2002–37 or Rev. Proc. 2002–38, whichever is applicable. The related party is required to change notwithstanding the testing date provisions in §§ 706(b)(4) or 898(c)(1)(C)(ii).