SECTION 2. BACKGROUND

.01 Section 442 and § 1.442–1(a) of the Income Tax Regulations generally provide that a taxpayer that wants to change its annual accounting period and use a new taxable year must obtain the approval of the Commissioner.

.02 Section 1.442–1(b)(2) provides, in relevant part, that a change in annual accounting period will be approved only where the taxpayer agrees to the Commissioner’s prescribed terms, conditions, and adjustments for effecting the change.

.03 Section 1.442–1(b)(3) provides that such terms, conditions, and adjustments may include adjustments necessary to neutralize the tax effects of a substantial distortion of income that would otherwise result from the requested annual accounting period, including, for example, the creation of a short period in which there is a substantial NOL, CL, or credit (including a general business credit).

.04 Section 172(b)(1)(A)(i) generally provides that an NOL for any taxable year must be carried back to each of the 2 taxable years preceding the taxable year of such NOL, unless the taxpayer elects to forgo the carryback period by attaching a statement to the taxpayer’s timely filed original federal income tax return for the loss year. See § 172(b)(3). Section 172(b)(1)(H) provides that NOLs arising in a taxable year ending during 2001 and 2002 must be carried back to each of the 5 taxable years preceding the taxable year of such NOL, unless the taxpayer elects to forgo the carryback period entirely under § 172(b)(3), or elects under § 172(j) to forgo the 5-year carryback period in favor of a 2-year carryback period. In addition, § 172 provides special rules (including different carryback periods) for certain net operating losses, such as specified liability losses, casualty losses, and net operating losses incurred by real estate investment trusts and farming businesses.

.05 Section 1212 generally provides that if a corporation has a net CL for any taxable year, the net CL generally must be carried back to each of the 3 taxable years preceding the taxable year of the CL.

.06 Rev. Proc. 2002–37 provides the exclusive procedures for certain corporations to obtain automatic approval of the Commissioner to change their annual accounting periods. Rev. Proc. 2002–37 modi

1. Whether the recommended guidance is consistent with the Internal Revenue Code and Congressional intent;

2. Whether the recommended guidance promotes sound tax administration;

3. Whether taxpayers can easily understand and apply the recommended guidance;

4. Whether the Service can enforce the recommended guidance on a uniform basis; and

5. Whether the recommended guidance reduces controversy or lessens the burden on taxpayers and the Service.

Taxpayers may submit recommendations for guidance at any time during the year. Please submit recommendations by May 15, 2003, for possible inclusion on the original 2003–2004 Guidance Priority List. The Service will update the 2003–2004 Guidance Priority List quarterly to reflect additional guidance that the Treasury Department and the Service intend to publish during the plan year. The quarterly updates allow the Treasury Department and the Service to respond to the need for additional guidance that may arise during the plan year. Generally, recommendations for guidance received after May 15, 2003, will be reviewed for inclusion in the next quarterly update if received by August 31, 2003; November 30, 2003; or February 28, 2004, respectively.

Taxpayers are not required to submit recommendations for guidance in a particular format. Taxpayers should, however, briefly describe the recommended guidance and explain the need for the guidance. In addition, taxpayers may include an analysis of how the issue should be resolved.

Taxpayers should send written comments to:

Internal Revenue Service Attn: CC:PA:RU (Notice 2003–26) Room 5226 P.O. Box 7604 Ben Franklin Station Washington, D.C. 20044 or hand deliver comments between the hours of 8 a.m. and 5 p.m. to:

Courier’s Desk Internal Revenue Service Attn: CC:PA:RU (Notice 2003–26) 1111 Constitution Avenue, N.W. Washington, D.C. 20224 Alternatively, taxpayers may submit comments electronically via e-mail to the

following address: Notice.Comments @irscounsel.treas.gov. Taxpayers should include “Notice 2003–26” in the subject line. All comments will be available for public inspection and copying in their entirety.

For further information regarding this notice, contact Crystal Foster of the Office of Associate Chief Counsel (Procedure and Administration) at (202) 622–4652 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods and methods of accounting. (Also Part I, §§ 442; 1.442–1) Rev. Proc. 2003–34